GBP/USD sticks to the neutral stance – UOB

In view of FX Strategists at UOB Group, Cable faces risk of further downside in the near term.

Key Quotes

24-hour view: “While we anticipated a lower GBP yesterday, the pace and extent of the drop way exceeded our expectation. The major support levels at 1.4040 and 1.3980 were easily taken out as GBP crashed to an overnight low of 1.3953. There is no sign of stabilization just yet and the current decline could extend to 1.3900 (with lower odds of further extension to 1.3855). Only a move back above 1.4050 would indicate that the weakness has stabilized (minor resistance is at 1.4000)”.

Next 1-3 weeks: “We highlighted the weak undertone in GBP yesterday and were of the view that this could lead to a “test of last week’s 1.3980 low”. However, the pace of the decline was more rapid than expected as GBP plummeted to an overnight low of 1.3953. In view of the strong rally from the 1.3458 low in mid-January, the current pullback is still viewed as part of a neutral correction. That said, the pullback has room to extend further towards 1.3800. A clear break of this level would indicate that the January’s peak of 1.4346 is a more important top than currently expected. On the upside, only a move back above 1.4100 would indicate that the immediate downward pressure has eased”.