GBP/USD: Any decline is likely part of a lower range - UOB Group

Pound Sterling (GBP) could continue to weaken; any decline is likely part of a lower range of 1.3395/1.3460. In the longer run, the outlook for GBP will turn negative if it breaks and closes below 1.3395, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Outlook for GBP can turn negative below 1.3395

24-HOUR VIEW: "Two days ago, we indicated that 'there is a chance for GBP to drop to 1.3460.' GBP subsequently dropped to a low of 1.3448. Yesterday, we highlighted that 'while the decline did not lead to a further acceleration in downward momentum, the price action remains soft, and

the risk is still tilted to the downside.' However, we were of the view that 'the major support at 1.3415 is probably still out of reach for now.' Our view of a weaker GBP was not wrong, even though it fell more than expected, reaching a low of 1.3407. While GBP could continue to weaken today, deeply oversold conditions suggest that any weakness is likely part of a lower range of 1.3395/1.3460. In other words, GBP is unlikely to break clearly below 1.3395."

1-3 WEEKS VIEW: "The following is from our update yesterday: 'Our most recent narrative was from two days ago (19 Aug, spot at 1.3505), in which we highlighted that GBP 'is neutral now, and it is likely to trade in a range between 1.3415 and 1.3585.' Although GBP has been edging lower over the past couple of days, the increase in momentum is not sufficient to indicate a sustained decline just yet. In other words, our view remains unchanged for now.' GBP subsequently broke below 1.3415 and reached a low of 1.3407. While downward momentum continues to increase, we prefer to wait for a clearer indication (a break and close below 1.3395) before turning negative on GBP. The probability of GBP closing below 1.3395 will grow in the coming days provided that the 'strong resistance' level, now at 1.3495 is not breached."