GBP/USD scope for a correction lower – UOB

Following the rejection from recent tops, Cable could still face some downside pressure, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected GBP to weaken yesterday, we were of the view “a break of the solid 1.2150 support is not expected”. We added, “there is another support at 1.2180”. GBP subsequently dipped to 1.2172 during late NY hours before settling on a soft note at 1.2182. The immediate risk still appears to be tilted to the downside and for today, a breach of 1.2150 is not ruled out. That said, lackluster momentum suggests the next support at 1.2125 is unlikely to be challenged (this level is followed by a solid support at 1.2100). On the upside, only a move above 1.2250 would indicate that the current mild downward pressure has eased (minor resistance is at 1.2225)”.

Next 1-3 weeks: “We have held the same view since last Friday (23 Aug, spot at 1.2245) wherein the movement in GBP is viewed as “part of a consolidation phase even though the firm underlying tone suggests GBP is likely to probe the top of the expected 1.2150/1.2380 range first”. After touching a one-month high of 1.2310 on Tuesday (27 Aug), GBP plummeted (on the back Brexit headlines) and came close to the bottom of the expected range at 1.2150 (low of 1.2156). While the positive underlying tone has been dented, we continue to view the current movement as part of a consolidation phase. That said, after yesterday’s price action, GBP would likely trade at a lower range of 1.2100/1.2300 in the coming days”.