GBP/USD scope for deeper pullback – UOB

Cable faces the possibility of a deeper retracement in the near term, according to FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected a lower GBP yesterday but the plunge below the ‘target’ indicated at 1.4145 came as a surprise (overnight low has been 1.4069). While the decline is severely oversold, it is too early to expect a sustained rebound. From here, a dip below the overnight low would not be surprising but overall it appears that GBP is trying to form a temporary base. To put it another way, we expect GBP to trade sideways to slightly lower, likely between 1.4040 and 1.4130”.

Next 1-3 weeks: “We highlighted yesterday that the “near-term bias is for a probe lower towards the bottom of the expected 1.4080/1.4320 consolidation range” but the subsequent price action is anything but a ‘probe’ as GBP plummeted to an overnight low of 1.4069. While the outsized decline over the past few days has shifted the immediate pressure to the downside, we are not convinced that the current weakness is the start of a bearish phase. That said, the weak undertone could lead to further down-move towards 1.4000 (with lower odds for extension towards the month-to-date low of 1.3965). All in, we expect GBP to stay under pressure from here unless it can reclaim 1.4200”.