Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest GBP/USD could weaken further and revisit the mid-1.2300s in the near term.

Key Quotes

24-hour view: “Our view for GBP to consolidate yesterday was incorrect as it plummeted to 1.2392 before recovering slightly to end the day at 1.2409 (0.63%). Today, as long as it stays below 1.2460 (minor resistance is at 1.2440), it could break the major support at 1.2390. In view of the oversold conditions, the next major support at 1.2350 is unlikely to come into view today.”

Next 1-3 weeks: “One week ago, 12 May, when GBP was trading at 1.2515, we indicated that ‘GBP strength has ended and the downside risk is building quickly’. We added, ‘If GBP breaks below 1.2445, it could trigger a rapid decline to 1.2390’. While GBP took out 1.2445, the anticipated ‘rapid decline’ did not materialize. On Monday (15 May, spot at 1.2455), we highlighted that GBP ‘is likely to weaken further to 1.2390 but oversold short-term conditions could slow the pace of any further decline’. Yesterday (18 May), GBP dropped to within a couple of pips of 1.2390 (low of 1.2392). GBP is likely to weaken further; a clear break of 1.2390 will suggest it could drop to 1.2350, as low as 1.2300. On the upside, a breach of 1.2500 (‘strong resistance’ level previously at 1.2560) would indicate that GBP is not weakening further.”