GBP/USD: a test of 1.2205 now lost traction – UOB

A potential move to the 1.2200 neighbourhood in Cable now appears unlikely in the near term, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Instead of trading “sideways to slightly lower”, GBP traded in a volatile manner as it reversed an initial steep drop to 1.2205 before surging back up to end the day at 1.2308 (+0.10%). The choppy price action has resulted in a mixed outlook and GBP could continue to trade in a volatile manner and within a broad range for today, expected to be between 1.2250 and 1.2360”.

Next 1-3 weeks: “We have held a negative view on GBP since last Tuesday (24 Sep, spot at 1.2435) wherein we indicated “a short-term top is in place” and expected GBP to “trade sideways to lower”. We ‘upgraded’ the downside risk on Thursday (26 Sep, spot at 1.2360) and indicated GBP “could extend lower to 1.2250”. After GBP dropped to 1.2270 last Friday, we highlighted on Monday (30 Sep, 1.2295) that a “clear break of 1.2250 could lead to further weakness to 1.2205”. Our view for the past week was correct as GBP plummeted and touched 1.2205 yesterday. That said, the subsequent swift and sharp recovery was not exactly expected. The price action suggests that 1.2205 is a formidable support level and unless GBP can move and stay below 1.2250 within these few days, the prospect for sustained decline below 1.2205 is not high. On the upside, a break of 1.2390 (no change in ‘strong resistance’ level) would suggest that the past week weakness has stabilized”.