GBP/USD risks a deeper retracement – UOB

A close below 1.2770 in Cable could lead to further losses to the 1.2700 handle, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected GBP to “drift lower to 1.2835” yesterday but were of the view “the next support at 1.2800 is not expected to come into the picture”. The subsequent GBP weakness exceeded our expectation as GBP edged to a low of 1.2794 before recovering. While the swift decline appears to be running ahead of itself, the weakness is not showing sign of stabilization just yet. From here, GBP could move below 1.2800 again even though the next support at 1.2770 could be just out of reach for today. Resistance is at 1.2840 followed by 1.2865”.

Next 1-3 weeks: “While we expected GBP to trade sideways since last Tuesday (29 Oct, spot at 1.2855), we detected the weakened underlying tone yesterday (07 Nov, spot 1.2860) and highlighted that GBP is likely to “probe the bottom” of the expected 1.2770/1.2930 range first. GBP subsequently dropped sharply to 1.2794 before ending the day on a weak note (1.2814, -0.33%). The price action has increased the risk of a deeper pullback in GBP. From here, if GBP were to register a NY closing below 1.2770, GBP could decline further to 1.2700. All in, GBP is expected to stay on the back foot unless it can recover above 1.2885 (‘strong resistance’ level)”.