United Overseas Bank (UOB) strategists Quek Ser Leang and Lee Sue Ann report that GBP/USD’s sharp drop to 1.3493 looks stretched short term, favouring consolidation between 1.3495 and 1.3535 intraday. On a one-to-three-week horizon, however, building downside momentum means a close below 1.3495 would likely open the way to 1.3475, while resistance is now clustered near 1.3560.

Consolidation now but risks lower

"24-HOUR VIEW: Yesterday, we indicated that GBP “could trade between 1.3520 and 1.3570.” GBP then edged to a high of 1.3559 but during the NY session, it fell sharply to 1.3493. The sharp drop appears to be overdone, and instead of continuing to decline, GBP is more likely to consolidate between1.3495 and 1.3535."

"1-3 WEEKS VIEW: Tracking our neutral view from late last week, we highlighted the following yesterday: “Although GBP has been edging higher over the past few days, there has been no significant increase in upward momentum. We continue to hold a neutral stance, but a narrower range of 1.3495/1.3590 is likely enough to contain the price movements for now.” We did not expect GBP to then fall and test the 1.3495 level with a low of 1.3493. Downward momentum is starting to build, and if GBP closes below 1.3495, it will then likely break the next support at 1.3475 as well. The downward momentum will continue to build as long as GBP holds below 1.3560 (‘strong resistance’ level)."

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