The upside momentum in GBP/USD now faces a tough barrier at the 1.1600 region, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

24-hour view: “We highlighted yesterday that GBP ‘could continue to rise even though the chance of a break of 1.1400 is not high’. The anticipated GBP strength exceeded our expectations by a large margin as GBP surged to a high of 1.1490.  The rally appears to be severely overextended but with no signs of easing just yet, GBP could rise further to 1.1530 before a more sustained pullback is likely. For today, GBP is unlikely to challenge the major resistance at 1.1600. On the downside, a breach of 1.1330 (minor support is at 1.1380) would indicate that the strong rally over the past few days is ready to take a breather.”

Next 1-3 weeks: “We called for a bottom in GBP last Friday (30 Sep, spot at 1.1150) and our view was correct. Yesterday (04 Oct, spot at 1.1325) we held the view that GBP could rebound further to 1.1450. However, GBP rose more than expected as it surged to a high of 1.1490 in late NY trade. Not surprisingly, upward momentum is strong and GBP could advance further. However, GBP is unlikely to be able to maintain the frenetic pace of advance. Overall, as long as 1.1230 (‘strong support’ level was at 1.1000 yesterday) is not breached, there is room for GBP to advance further but it remains to be seen if it can break the next resistance at 1.1600.”