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Analysts at one of South East Asia's largest banks have told clients that correction lower in the Pound-to-Dollar exchange rate is not yet complete.
"While we have held the same view that the pull-back in GBP “has room to extend lower” to 1.3800 since last Tuesday (06 Feb, spot at 1.3960), the ease of which this strong support was taken out on Friday was unexpected," says Quek Ser Leang with United Oversees Bank in Singapore.
Leang makes the comments at the start of a new week in which Sterling is seen attempting to claw back lost ground against the Dollar with the currency withdrawing from a multi-month and 2018 high at 1.4346 taking it back below 1.40. At the time of writing the exchange rate is quoted at 1.3847 on the inter-bank markets with retail quotes for currency buyers seen starting at 1.3722.
The dominant debate at present is over whether the decline we are witnessing is the end of the road for a run higher that has been in place for months, or a temporary decline in the advance.
For Leang, the answer would have to be the latter.
"Despite the sharp decline, it appears premature to expect the start of a major bearish reversal," says Leang.
But, the analyst argues the pullback could still take Sterling deeper.
"In view that GBP has rallied by more than 10 big figures from a low of 1.3027 (October last year) to a high of 1.4346 late last month, a deeper correction towards 1.3660 would not be surprising," says Leang.
The analyst notes this level is roughly about 50% retracement of the October to January rally and is also close to the rising trend-line support as well as the peak in Sep 2017 (see chart above).
According to Leang, a clear break below this major support would suggest that the 1.4346 high is a more significant top than currently expected.
"Regardless, GBP is expected to continue to stay under pressure in the coming days unless it can move and stay above 1.3940 (key short-term resistance previously at 1.4100)."
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