In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, a potential test of 1.2720 in GBP/USD could run out of steam if 1.2540 is breached.

Key Quotes

24-hour view: “We highlighted yesterday that ‘while upward momentum has waned somewhat, there is room for GBP to test 1.2665 before the risk of a pullback increases’. We added, ‘The next resistance at 1.2720 is not expected to come under threat’. Our view turned out to be correct as GBP rose to 1.2668 and then pulled back. The pullback could extend but we view any decline as a lower range of 1.2575/1.2655. In other words, GBP is unlikely drop below 1.2575 in a sustained manner.”

Next 1-3 weeks: “Last Friday (05 May, spot at 1.2575), we highlighted that GBP ‘is likely to ratchet higher towards the major resistance at 1.2665’. Yesterday (08 May, spot at 1.2630), we indicated that ‘upward momentum is improving and GBP could break above 1.2665’ and ‘the next resistance above 1.2665 is at 1.2720’. GBP rose to a high of 1.2668 in London trade before pulling back. Overbought short-term conditions suggest GBP could stay below 1.2668 for 1-2 days. Overall, only a breach of 1.2540 (no change in ‘strong support’ level from yesterday) would indicate that 1.2720 is out of reach this time around.”