GBP/USD: The breach of 1.3100 exposes a deeper drop – UOB

Cable could grind lower and revisit the 1.3050 level if 1.3100 is breached in the short-term horizon, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected GBP to ‘weaken further’ yesterday, we were of the view that ‘any decline is expected to encounter solid support at the 2021 low of 1.3160’. The anticipated support did not materialize as GBP easily cracked 1.3160 and plummeted to 1.3102. Downward momentum has eased somewhat but the risk remains on the downside. From here, a breach of 1.3100 would not be surprising but oversold conditions suggest GBP may not be able to maintain a foothold below this major support (next support is at 1.3050). Resistance is at 1.3170 followed by 1.3200.”

Next 1-3 weeks: “We have highlighted the downside risk in GBP for more than a week now. In our latest narrative from yesterday (07 Mar, spot at 1.3215), we highlighted that risk for GBP is still on the downside but we noted there is major support at 1.3160. We added ‘looking ahead, the next support below 1.3160 is at 1.3100’. In other words, while our view for a weaker GBP was not wrong, we did not expect the subsequent sharp and swift sell-off that sent GBP to a low of 1.3102. Downward momentum remains strong and a breach of 1.3100 would shift the focus to 1.3050 followed by 1.3000. The downside risk is intact as long as GBP does not move above 1.3280 within these few days (‘strong resistance’ level was at 1.3330 yesterday).”