GBP/USD risks a test of 1.2775 – UOB

FX Strategists at UOB Group believe Cable could slip back towards the 1.2770 region in the near term.

Key Quotes

24-hour view: “While we expected GBP to take out last Friday’s low of 1.2932, the sharp plunge after the weaker than expected UK inflation data came as a surprise. The sharp decline is clearly over-extended but with no signs of stabilization just, another push to move below the strong 1.2845/50 support (rising trend-line on the daily chart) is not ruled out. That said, a clear and sustained move below the July’s low of 1.2812 is not expected for now. Resistance is at 1.2900 but only a move back above 1.2930 would indicate that the current weakness has stabilized”.

Next 1-3 weeks: “While we held the view that the bearish phase that started last Monday (07 Aug, spot at 1.3045) is still intact, the ease of which the strong support at 1.2900 was taken out was unexpected (thanks to the weaker than expected UK inflation data). The strong decline even managed to edge below the next strong support at 1.2850 (overnight low of 1.2846). Downward momentum has picked up strongly and there is room for the current GBP weakness to extend further to 1.2775 (even though the July’s low near 1.2710/15 may not be easy to break). On the upside, resistance is at 1.2930 but only a break back above 1.2970 (stop-loss adjusted sharply lower from 1.3060) would indicate that the current bearish phase has ended”.