Instead of continuing to decline, Pound Sterling (GBP) is more likely to consolidate between 1.3110 and 1.3170. In the longer run, the outlook for GBP remains negative, but for it to continue to decline, it must first close below 1.3100, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Outlook for GBP remains negative

24-HOUR VIEW: "GBP dropped to a low of 1.3117 last Thursday. When GBP was at 1.3155 on Friday, we highlighted the following: 'Although conditions are still oversold, there is a chance for GBP to retest the 1.3120 level before a recovery can be expected. The major support at 1.3100 is unlikely to come into view'. The anticipated decline exceeded our expectations as GBP dropped slightly below 1.3100 (low of 1.3097) before rebounding. The rebound from deeply oversold conditions suggests that, instead of continuing to decline, GBP is more likely to consolidate today, probably between 1.3110 and 1.3170."

1-3 WEEKS VIEW: "In our most recent narrative from last Thursday (30 Oct, spot at 1.3195), we highlighted that GBP 'is still negative', but we pointed out that 'it remains to be seen if the next technical target at 1.3100 is within reach during this phase of weakness'. On Friday, GBP dropped slightly below 1.3100 (low of 1.3097) and then rebounded. While the outlook for GBP remains negative, the weakness that started about two weeks ago (see annotations in the chart below) is deeply oversold, and for GBP to continue to decline, it must first close below 1.3100. On the upside, if GBP breaks above 1.3205 (‘strong resistance’ level was previously at 1.3245), it would mean that GBP is not weakening further. Looking ahead, if GBP closes below 1.3100, the next level to watch is 1.3050."