GBP/USD risks a test of the mid-1.2900s – UOB

Cable faces extra downside risks and could drop to the 1.2950 region, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our view for GBP to ‘continue to advance towards 1.3105’ last Friday was not wrong as it rose to a high of 1.3120. However, the subsequent sharp sell-off that hit a low of 1.3007 was not expected. The weak opening this morning suggests further decline is likely even though oversold conditions suggest the major 1.2955 support could be out of reach (minor support at 1.2980) for today. Resistance is at 1.3030 and the next level at 1.3060 is expected to be strong enough to cap any intraday rebound.”

Next 1-3 weeks: “We highlighted last Friday (17 Jan, spot at 1.3075) that only a break of the ‘strong resistance’ level of 1.3130 would indicate that a short-term bottom is in place. We added, ‘until then, there is still a slim chance of GBP moving below 1.2955’. GBP subsequently popped to a high of 1.3120 before staging a surprisingly sharp decline and ended the day markedly lower at 1.3007 (-0.53%). While the price action suggests that downside risk remains intact, downward momentum has not improved by much. To look at it another way, while GBP could dip below 1.2955, the next support at 1.2900 may not come into the picture. On the upside, the ‘strong resistance’ level has moved lower to 1.3090 from last Friday’s level of 1.3130.”