In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, GBP/USD does not rule out a break below the 1.2500 support in the near term.

Key Quotes

24-hour view: Our view for GBP to trade in a range yesterday was incorrect, as it fell to a low of 1.2529 and then rebounded to end the day at 1.2564 (0.51%). While the rebound in oversold conditions has caused momentum to slow, it is too early to expect a bottom. Today, as long as GBP stays below 1.2615 (minor resistance is at 1.2590), it might drop further. In view of the oversold conditions, a clear break of 1.2500 is unlikely.

Next 1-3 weeks: Our most recent narrative was from two days ago (04 Sep, spot at 1.2590), when we highlighted that “the risk for GBP appears to have shifted to the downside.” We also highlighted that “as downward momentum is only beginning to build, any weakness is likely to face solid support at 1.2545 and 1.2500.” Yesterday, GBP broke below 1.2545 and dropped to 1.2529. In view of the increase in downward momentum, it seems likely that GBP will break 1.2500. However, it bears noting that there is another strong support level at 1.2470. Overall, only a breach of 1.2640 (‘strong resistance’ level was at 1.2680) would suggest that the downside risk has faded.