UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang suggest GBP/USD still faces further downside in the near term.

Key Quotes

24-hour view: “Yesterday, when GBP was trading at 1.2370, we expected it to drop below 1.2350. However, we indicated that ‘the next major support at 1.2300 is unlikely to come into view today’. Our expectations were correct as GBP broke below 1.2350 and dropped to a low of 1.2308. While conditions are severely oversold, the weakness in GBP has yet to stabilize. Today, as long as GBP stays below 1.2375 (minor resistance is at 1.2345), it is likely to break below 1.2300. The chance of GBP reaching the next support at 1.2255 today is not high.”

Next 1-3 weeks: “We indicated yesterday that ‘the risk for GBP is still on the downside’. We added, ‘a clear break below 1.2350 will shift the focus to 1.2300’. In line with our expectations, GBP cracked 1.2350 and dropped to 1.2308. The weak phase in GBP started two weeks ago is still intact. In view of the oversold conditions, any further decline is likely to be at a slower pace and it remains to be seen if the next major support at 1.2175 will come into view this time around. It is worth noting that there is a shorter-term support at 1.2250. On the upside, a breach of 1.2415 (‘strong resistance’ level was at 1.2470 yesterday) would suggest the GBP weakness has stabilized.”