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Cable’s upside momentum risks facing a tough barrier above the 1.27 mark, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted last Friday that “impulsive upward momentum suggests there is room for GBP to test 1.2500″. However, instead of ‘testing’ 1.2500, GBP blew past this level and rocketed to a high of 1.2708. While further GBP strength in the days ahead would not be surprising, the short-term rally is deep in overbought territory and GBP is not expected to move beyond Friday’s peak of 1.2708. In other words, a temporary top is likely in place. For today, the risk is for a pull-back even though any weakness is viewed as a lower trading range of 1.2480/1.2680 (a sustained decline is not expected)”.

Next 1-3 weeks: “We held the view last Friday “the price action has clearly shifted the risk to the upside”. However, we woefully underestimated the pace of GBP’s strength as it blew past “the several strong resistance levels that are stacked close to each other” and rocketed to a high of 1.2708 before ending last Friday at 1.2650 (for a 1-week gain of +2.57%, the largest in more than 2 years). From here, GBP is likely ‘attracted’ by the June’s top of 1.2784 but severely overbought short-term conditions could lead to a couple of days of consolidation first. That said, the declining weekly trend line resistance connecting 1.4377 (Apr 2018) and 1.3380 (Mar 2019) currently sits at 1.2720 and this level may temporarily thwart the advance in GBP. All in, the risk is still for a higher GBP and only a break of 1.2380 (‘strong support’ level at 1.2300 last Friday) would indicate the current positive phase has run its course”.