GBP/USD: Sharp drop appears to be overextended

The Pound Sterling (GBP) is expected to trade between 1.2510 and 1.2610. In the longer run, sharp drop appears to be overextended; any further decline may find it difficult to break below 1.2475, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

GBP may find it difficult to break below 1.2475

24-HOUR VIEW: “When GBP was at 1.2550 early yesterday, we indicated the following: ‘As long as GBP remains below 1.2600 (minor resistance is at 1.2575), it could test the 1.2505 support. Last Friday’s low of 1.2475 is unlikely to come under threat.’ The subsequent price action did not turn out as we expected. GBP did not quite test 1.2505, as it dropped to 1.2512 before staging a surprisingly sharp bounce to a high of 1.2616. GBP pulled back from the high to close largely unchanged at 1.2568 (-0.02%). The current price movements are likely part of a range trading phase. Today, we expect GBP to trade between 1.2510 and 1.2610.”

1-3 WEEKS VIEW: “We have held a negative view in GBP since the middle of this month. After GBP plummeted to 1.2475 and rebounded strongly, we indicated on Monday (25 Nov, spot at 1.2590) that ‘the sharp drop appears to be overextended.’ We pointed out, ‘any further decline may find it difficult to break last Friday’s low of 1.2475, which is serving as a significant support level.’ We will continue to hold the same view as long as 1.2650 (no change in ‘strong resistance’ level) is not breached.”

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