24-hour view: While we expected GBP to weaken further yesterday, we indicated that “severely oversold conditions could limit any further decline to a test of 1.2850.” GBP fell more than expected to 1.2840 before rebounding. The rebound in still oversold conditions suggests GBP is unlikely to weaken much further. Today, GBP is more likely to trade in a range of 1.2835/1.2930. 

Next 1-3 weeks: After GBP dropped sharply on Wednesday, in our update from yesterday (20 Jul, spot at 1.2935), we highlighted that the “decline has room to extend.” However, we indicated that GBP “has to break clearly below 1.2850 before a deeper pullback is likely.” GBP fell to a low of 1.2840 in NY trade, and downward momentum has improved, albeit not much. From here, GBP could drop further, but it is worth noting that there is another solid support at 1.2780. On the upside, a breach of 1.3000 (‘strong resistance’ level was at 1.3100 yesterday) would indicate that GBP is now weakening further.