GBP/USD: Risk remains on the downside

Instead of declining further, Pound Sterling (GBP) is more likely to trade in a 1.2240/1.2360 range. In the longer run, risk remains on the downside; oversold conditions could slow the pace of any further decline. The level to monitor is 1.2200, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

Oversold conditions can slow the pace of further decline

24-HOUR VIEW: “GBP plunged to a low of 1.2321 two days ago. Yesterday, we pointed out that ‘while the sharp and swift selloff seems overdone, the weakness in GBP has not stabilized.’ We expected GBP to decline, but we indicated that ‘the significant support level at 1.2300 could be out of reach.’ However, GBP easily broke below 1.2300 and plummeted to a low of 1.2239. GBP rebounded from the low to close at 1.2307 (-0.47%). Downward momentum has slowed somewhat with the rebound. This, combined with oversold conditions suggests that instead of declining further, GBP is more likely to trade in a 1.2240/1.2360 range.”

1-3 WEEKS VIEW: “Yesterday (09 Jan), when GBP was at 1.2360, we indicated that ‘the risk for GBP has shifted to the downside.’ However, we pointed out that ‘1.2300 is a significant support level.’ The anticipated support did not materialize, as GBP plunged below 1.2300, reaching a low of 1.2239. From here, the risk remains on the downside, even though deeply oversold short-term conditions could slow the pace of any further decline. The next level to monitor is 1.2200. On the upside, should GBP break above 1.2405 (‘strong resistance’ level was at 1.2465 yesterday), it would indicate that the downside risk has faded.”

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