GBP/USD may retest the 1.3340 low - UOB Group

Sharp drop in Pound Sterling (GBP) may retest the 1.3340 low; a sustained decline below this level is unlikely. In the longer run, sharp drop appears excessive, but there is room for GBP to weaken further to 1.3305, potentially testing 1.3270, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

There is room for GBP to weaken further to 1.3305

24-HOUR VIEW: "GBP rose to a high of 1.3550 two days ago. Yesterday, we stated that 'despite the advance, there has been no significant increase in upward momentum.' However, we pointed out that "there is scope for GBP to edge above 1.3560 before levelling off.' The subsequent price movements turned out rather differently than what we expected, as GBP plunged from 1.3548 to 1.3340, and then closed at 1.3394, down sharply by 1.14%, its biggest one-day decline in over five months. The sharp drop appears to be overstretched, but with no sign of stabilisation just yet, GBP may retest the 1.3340 level. A sustained decline below this level is unlikely, and the major support at 1.3305 is also unlikely to come into view. On the upside, resistance levels are at 1.3420 and 1.3445."

1-3 WEEKS VIEW: "On Monday (01 September, spot at 1.3500), we indicated that GBP 'is likely to continue to range-trade, but a narrower range of 1.3420/1.3560 is likely enough to contain the price movements.' After GBP rose to 1.3550, we indicated yesterday (02 September, spot at 1.3545) that GBP "could edge higher, potentially testing the major resistance at 1.3595.' We added, 'to sustain the mild upward momentum, GBP must hold above 1.3480 ('strong support' level).' Our view was invalidated quickly, as GBP broke below 1.3480 and plunged to 1.3340. While the sharp drop appears excessive, there is room for GBP to weaken further to 1.3305, potentially testing the significant support level near 1.3270. This time around, to sustain the downward momentum, GBP must hold below 1.3490."