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Cable is seen gathering extra downside traction in the next weeks, although a test of 1.2700 still remains unlikely, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Instead of trading sideways, GBP edged to a high of 1.2844 before ending the day on a firm note at 1.2815. The improved underlying tone suggests GBP could continue to edge higher towards 1.2860. For today, the strong resistance at 1.2900 is not expected to come into the picture. On the downside, only a move below 1.2770 would indicate the current mild upward pressure has eased (minor support is at 1.2800).”

Next 1-3 weeks: “While we indicated last Friday that a ‘NY close below 1.2820 would suggest GBP is ready to embark of a sustained decline’, we were of the view ‘the prospect for such a scenario is low for now’. However, GBP sliced through 1.2820 and plunged to a 4-1/2 -month low of 1.2726 before snapping back up to end the day at 1.2821 (-0.48%). The break of 1.2820 has exposed the downside in GBP even though 1.2700 is a strong support and may not come into the picture so soon. To look at it another way, GBP could consolidate for a couple of days first before making a run for 1.2700. On the upside, only a move above 1.2900 (‘strong resistance’ level) would indicate that GBP is not ready to move lower just yet.”