FX Strategists at UOB Group noted a drop below 1.2440 could spark further losses in Cable.
24-hour view: “While we expected GBP to “extend its gains” yesterday, we were of the view that “a break of 1.2550 is unlikely”. However, GBP surged to 1.2571 before dropping back quickly. Upward momentum is patchy at best and the risk for GBP to move beyond the 1.2571 high is deemed as low. From here, GBP is more likely to trade sideways to slightly lower, expected to be within a 1.2485/1.2555 range”.
Next 1-3 weeks: “After GBP dropped to 1.2439 on Tuesday, we indicated on Wednesday (10 Jul, spot at 1.2465) that we “prefer to wait for a NY close 1.2440 before adopting a more negative stance”. The strong recovery in GBP yesterday (11 Jul) took out the strong resistance at 1.2550 which suggest that the recent downward pressure has eased. In other words, the risk for a sustained decline in GBP has been alleviated. From here, GBP is expected to trade sideways, likely within a relatively broad range of 1.2440/1.2600”.