FX Strategists at UOB Group still believe Cable could advance well above the 1.2700 handle in the next weeks.
Key Quotes
24-hour view: “We highlighted yesterday that “the risk is for a pull-back in GBP but any weakness is viewed as part of lower trading range of 1.2480/1.2680″. GBP subsequently dipped to 1.2517 before rebounding back up to 1.2650. The price action is still viewed as part of consolidation phase even though the firmed underlying tone suggests GBP is likely to trade sideways at a higher range of 1.2550/1.2680″.
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 (trend line not visible in chart below but can be seen in our Quarterly Global Outlook from last month). 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”.
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