There is room for Pound Sterling (GBP) to test 1.3435; the major support at 1.3400 is not expected to come under threat. In the longer run, downside risk appears to be building, but any GBP weakness is likely part of a lower range of 1.3400/1.3535, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Major support at 1.3400 is not expected to come under threat

24-HOUR VIEW: "We expected GBP to 'trade in a range between 1.3470 and 1.3535' yesterday. Our view was incorrect as GBP dropped to a low of 1.3456. Despite the decline, downward momentum only built slightly. That said, there is room for GBP to test 1.3435. We do not expect the major support at 1.3400 to come under threat. To sustain the momentum buildup, GBP must not break above 1.3500 (with minor resistance at 1.3480)."

1-3 WEEKS VIEW: "Two days ago (06 Jan, spot at 1.3535), we indicated that GBP 'could rise to 1.3590'. However, we pointed out that 'the odds of a continued rise above this level are not high'. After GBP rose to 1.3567 and pulled back, we highlighted yesterday that “while upward momentum has slowed somewhat, we will maintain the same view as long as GBP holds above 1.3455 (‘strong support’ level).” GBP subsequently dropped to a low of 1.3456. Although our ‘strong support’ level has not been clearly breached yet, upward momentum has faded. The downside risk appears to be building but currently, we expect any weakness to be part of a lower range of 1.3400/1.3535. Looking ahead, if GBP breaks clearly below 1.3400, it could then trigger a more sustained and sizeable drop."