According to FX Strategists at UOB Group, Cable risks some consolidation or even a move lower if it cannot clear the 1/2580 region in the short-term horizon.
24-hour view: “GBP traded mostly sideways but surged suddenly to a 2-1/2 month high of 1.2560 during NY hours (on the back of Brexit headlines). The sudden surge appears to be running ahead of itself and further sustained advance is not expected for today. However, GBP could retest 1.2560 but a clear break of this level is unlikely (there is another strong resistance at 1.2580). Support is at 1.2490 but the more significant support is closer to 1.2460”.
Next 1-3 weeks: “The sudden surge in GBP yesterday sent it soaring to 1.2560, within sight of the 1.2580 level that we first indicated on Monday (16 Sep, spot at 1.2495). While we continue to see chance for GBP to test 1.2580, the recovery phase that started about 2 weeks ago (05 Sep, spot at 1.2245) is deep in overbought territory now. In other words, the prospect for a clear break of 1.2580 is not that high. In order to ‘overcome’ the current overbought conditions, GBP has to ‘punch’ through 1.2580. Otherwise, if GBP were to ‘hang around’ these elevated levels, the risk of a short-term top would increase quickly. On the downside, the ‘strong support’ level has moved markedly higher to 1.2430 from 1.2350 previously. A break 1.2430 would indicate that the recovery phase has run its course. Looking ahead, if GBP were to ‘punch’ above 1.2580, it could potentially lead to a ‘rapid rise’ as the next significant resistance is at 1.2780”.