Room for Pound Sterling (GBP) to drop to 1.2915 before the risk of a rebound increases; the next support at 1.2860 is unlikely to come under threat, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann note.

GBP may drop to 1.2915 in short-term

24-HOUR VIEW: “After GBP soared to 1.3043 on Wednesday and then pulled back, we indicated yesterday (Thursday) that ‘despite the advance, there is no significant increase in upward momentum, and GBP is unlikely to rise much further.’ We expected GBP to trade sideways between 1.2970 and 1.3045. However, instead of trading sideways, GBP dropped sharply, reaching a low of 1.2941. While the decline seems to be running ahead of itself, there is room for GBP to drop to 1.2915 before the risk of a rebound increases. The next support at 1.2860 is unlikely to come under threat. Resistance levels are at 1.2975 and 1.2995.”

1-3 WEEKS VIEW: “We have held a positive view in GBP since 04 Jul when it was trading at 1.2745 (see annotations in the chart below). We have been tracking the advance, and yesterday (18 Jul, spot at 1.3005), we indicated that ‘while the upside risk in GBP remains intact, conditions are severely overbought, and GBP might not reach 1.3100 this time around.’ We added, ‘a breach of 1.2940 would mean that GBP is not rising further.’ In NY trade, GBP fell to a low of 1.2941. While our ‘strong support’ level at 1.2940 has not been clearly breached yet, upward momentum has largely dissipated. In other words, the advance in GBP has come to an end. GBP has likely entered a consolidation phase, and it is likely to trade between 1.2850 and 1.3020 for the time being.”