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In light of the recent price action, Cable could now slip back to the 1.2855 level in the next weeks.

Key Quotes

24-hour view: “While our view from yesterday for GBP to ‘weaken further’ was correct, the ease by which GBP dived through successive strong support levels came as a surprise (GBP plunged to an overnight low of 1.2980). The sharp and rapid drop is severely oversold now and while further weakness is not ruled out, the pace of any further decline is likely to be slower and the next major support at 1.2850 is unlikely to come into the picture for today (1.2900 is already quite a strong level). That said, GBP has to move back above 1.3050 in order to indicate that the current weakness has stabilized (minor resistance is at 1.3010).”

Next 1-3 weeks: “Yesterday (08 Sep, spot at 1.3165), we highlighted that GBP ‘is likely to trade with a downward bias towards 1.3100’. We added, ‘only a daily closing below 1.3100 would indicate GBP is ready for a more sustained decline’. Instead of trading with ‘a downward bias’, GBP nose-dived and closed lower by a whopping -1.47% (1.2980), its biggest 1-day decline since mid-March. While the rapid drop appears to be overdone, strong downward momentum suggests GBP could weaken further towards the critical support at 1.2855. A clear break of this level could potentially lead to further weakness towards 1.2680. On the upside, the ‘strong resistance’ level has moved lower to 1.3120 (from yesterday’s level of 1.3280).”