GBP/USD: Risk building for test of 1.3400 – UOB

United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann highlight that GBP/USD dropped sharply to 1.3448 before recovering, with momentum still only modestly negative. They see scope for a dip toward 1.3440, though a move to 1.3400 looks unlikely on current intraday momentum. Over the coming weeks, however, the probability of a test of 1.3400 is seen as increasing while 1.3530 caps.

Sterling softens within broader range

"24-HOUR VIEW: Following Wednesday’s price action, we highlighted yesterday that “momentum indicators are mostly flat,” and we expected GBP to “trade in a range of 1.3475/1.3530.” The subsequent price movements did not unfold as expected. GBP traded within our expected range until the NY session, when it dropped sharply to 1.3448. GBP recovered from the low to close at 1.3467. Despite the decline, downward momentum has not increased much. However, GBP could edge lower to 1.3440. A break below this level is not ruled out, but based on the current momentum, any further decline is unlikely to reach 1.3400. Resistance is at 1.3480; a breach of 1.3510 would mean that GBP is not testing the 1.3440 level."

"1-3 WEEKS VIEW: Our most recent narrative was from Monday (20 Apr, spot at 1.3485), when we highlighted that the recent upward momentum has “fizzled out” and stated that GBP “is expected to trade in a range between 1.3400 and 1.3600 for now.” Yesterday, GBP dropped to a low of 1.3448. While the slight increase in downward momentum is not strong enough to indicate a continued decline, the probability of GBP testing 1.3400 is increasing and will continue to increase as long as the ‘strong resistance’ level, now at 1.3530, is not breached."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)