Further weakness could drag GBP/USD to the 1.2000 zone in the next few weeks, note UOB Group’s Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia.

Key Quotes

24-hour view: After GBP rose to a high of 1.2271 last Friday, we indicated yesterday that “the short-lived advance did not lead to any buildup in momentum, and GBP is unlikely to advance further.” We expected GBP to consolidate in a range of 1.2145/1.2255. Instead of consolidating, GBP plunged to a low of 1.2086. While severely oversold, there is room for GBP to weaken further. However, the major support at 1.2000 is likely out of reach for now (there is another support at 1.2050). On the upside, if GBP breaks above 1.2155 (minor resistance is at 1.2120), it would mean that the weakness in GBP has stabilised. 

Next 1-3 weeks: Our most recent narrative was from last Friday (29 Sep, spot at 1.2200), wherein the recent month-long weakness has ended, and GBP could consolidate in a range of 1.2100/1.2380 for the time being. We did not expect GBP to drop below 1.2100 so quickly, as it plummeted to a low of 1.2086 in NY trade. The rapid decline suggests that the weakness in GBP has resumed, likely towards 1.2000. In order to maintain the momentum buildup, GBP must not move above 1.2190, the current of ‘strong resistance’ level.