GBP/USD risks a probable drop to 1.2580 – UOB

24-hour view: After GBP fell sharply to 1.2680 on Wednesday, we highlighted yesterday that “While severely oversold, there appears to be enough momentum for GBP to dip below 1.2680.” We added, “The major support at 1.2645 is likely out of reach today.” However, GBP plummeted to 1.2620 in London trade, then snapped back up to close largely unchanged in NY (1.2709, -0.09%). Downward momentum has slowed, and this combined with still overbought conditions, suggests GBP is unlikely to weaken further. Today, GBP is more likely to trade sideways in a range of 1.2670/1.2770. 

Next 1-3 weeks: We turned negative in GBP last Friday (28 Jul, spot at 1.2800). In our update from yesterday (03 Aug, spot at 1.2725), we held the view that GBP “is likely to weaken further.” We indicated that “the next level to aim for is 1.2640, followed by 1.2580.” GBP broke below 1.2640 in London trade (low was 1.2620). While downward momentum has eased somewhat with the bounce from the low, there is a chance for GBP to drop to 1.2580. Overall, only a breach of 1.2805 (‘strong resistance’ level was at 1.2830) would indicate that the downside risk has faded.