FX Strategists at UOB Group still contemplate further downside in Cable to, initially, the 1.2110 region. Further below emerges the 1.1985 level.
Key Quotes
24-hour view: “We expected GBP to weaken yesterday but, we were of the view any weakness could be ‘limited’ by the severely oversold conditions. However, GBP not only plunged through 1.2170 but also came close to the next major support highlighted at 1.2110 (low of 1.2120). While further GBP weakness is not ruled in the coming days, the current short-term decline still appears to be severely oversold. From here, GBP is more likely to consolidate its loss and trade sideways, expected to be between 1.2120 and 1.2220″.
Next 103 weeks: “While we held the view yesterday (30 Jul, spot at 1.2225) that GBP has moved into a ‘negative phase’ and that it “could trade to 1.2110″, the subsequent rapid pace of decline was not exactly expected (GBP plunged to an overnight low of 1.2120). The downward acceleration over the past couple of days could be attributed to the lack of significant support levels. From here, if GBP were to crack 1.2110, it could lead to further steep decline as the next support is more than 100 pips lower at 1.1985. That said, 1.1985 is just a minor low in Jan 2017 (on the weekly chart) and it is left to be seen how much support it can offer (if GBP were to move to this level). Below this level, the more significant support would be the Oct 2016 ‘flash crash’ low of 1.1491. All in, despite being oversold, the current weakness in GBP is not showing sign of stabilizing just yet. Only a break of the 1.2295 ‘key resistance’ (level was at 1.2335 yesterday) would suggest that the decline in GBP is ready to take a breather”.
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