24-hour view: Yesterday, when GBP was trading at 1.2635, we highlighted that “as long as GBP does not break below 1.2580, it could rise further. However, we were of the view that “there does not appear to be enough momentum for GBP to break the major resistance at 1.2685.” While GBP strengthened as expected, the advance exceeded our expectations considerably. GBP soared to a high of 1.2746 before closing higher by 0.59% (NY close of 1.2719), its biggest 1-day gain in more than a month. Further GBP strength is not ruled out, but there does not appear to be enough momentum for it to reach 1.2800 today (there is a minor resistance at 1.2760). On the downside, if GBP breaks below 1.2655 (minor support is at 1.2685), it would indicate that it is not advancing further.  

Next 1-3 weeks: We highlighted yesterday (30 Aug, spot at 1.2635) that “the likelihood of GBP declining further has diminished.” We added, “a breach of 1.2685 would indicate that GBP is likely to trade in a range instead of declining further.” In NY trade, GBP not only broke above 1.2685, it also surged and closed sharply higher by 0.59% (NY close of 1.2719). The rapid increase in momentum suggests that instead of trading in a range, there is a chance for GBP to rise to 1.2800, with a lower possibility of reaching 1.2845. To maintain its current momentum, GBP must not drop below 1.2630 (‘strong support’ level).