GBP/USD risks further decline near term – UOB

The outlook for Cable still suggests the probability of a deeper retracement in the next weeks, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that ‘the underlying tone still appears to be soft and we continue to see scope for GBP to test the major support at 1.3700’. Instead of ‘testing’ 1.3700, GBP cracked the level and plunged to 1.3631. The weakness in GBP is clearly oversold but with no signs of stabilization just yet, GBP could decline further. That said, last month’s low near 1.3575 is likely out of reach for now (there is another support at 1.3600). On the upside, a break of 1.3690 (minor resistance is at 1.3665) would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “On Wednesday (18 Aug, spot at 1.3745), we held the view that ‘the sharp and swift decline earlier this week has scope to extend to 1.3700, with decent odds for extension to 1.3670’. Our view for a lower GBP was correct but we did not anticipate the manner by which it extend its weakness as it plunged to 1.3631 yesterday. Note that the -0.88% daily loss is the biggest 1-day decline in 2 months. While shorterterm conditions are oversold, solid downward momentum suggests there is room for GBP to decline further. The next major support is at July’s low near 1.3575. The negative outlook for GBP is deemed intact as long as it does not move above 1.3745 (‘strong resistance’ level was at 1.3805 yesterday).”