Pound Sterling (GBP) could test the significant support at 1.3445 against US Dollar (USD); oversold conditions suggest a clear break below this level is unlikely. In the longer run, outlook for GBP remains negative; the next technical target is at 1.3445, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note.
Outlook for GBP remains negative
24-HOUR VIEW: “GBP dropped to a low of 1.3535 last Thursday and then quickly rebounded. On Friday, we indicated that GBP ‘could retest the 1.3535 level.’ However, we stated that ‘the current momentum seems to suggest the major support at 1.3510 is unlikely to come under threat.’ Although our directional call turned out to be correct, the subsequent decline exceeded our expectations, as GBP plunged through 1.3510 and reached a low of 1.3481. Not surprisingly, the sharp drop has led to an increase in downward momentum. Today, GBP could test the significant support level at 1.3445. Given that conditions are deeply oversold, a clear break below this level is unlikely. To sustain the oversold momentum, GBP must not break above 1.3540 (with minor resistance is at 1.3520).”
1-3 WEEKS VIEW: “We have viewed GBP negatively since early this month. Tracking the subsequent price movements, in our most recent narrative from last Wednesday (09 Jul, spot at 1.3590), we stated that ‘the likelihood of GBP dropping to 1.3510 is increasing.’ On Friday, GBP broke below 1.3510 and reached a low of 1.3484. The outlook for GBP remains negative, and the next technical target is at 1.3445. We will maintain our view provided that the ‘strong resistance’ at 1.3575 (level was at 1.3645 last Friday) is not breached. Looking ahead, if GBP were to break and hold below 1.3445, it may trigger a deeper decline towards June’s low, near 1.3375.”