GBP/USD: BUSINESS ACTIVITY IN THE UK CONSTRUCTION SECTOR IS RECOVERING STRONGLY

Current trend

The GBP/USD pair is testing 1.2480 for a breakdown, developing the "bearish" impetus formed the day before, in the absence of support from macroeconomic statistics from the US and UK.

The local driver of the pound's upward dynamics was the S&P Global/CIPS Construction PMI, which in April showed an increase from 50.2 points to 53.0 points against the forecast of 50.4 points. In turn, the Halifax House Price Index added 0.1% after -0.9% in the previous month, while analysts expected 0.2%. House prices are close to stabilizing as investors anticipate interest rate cuts, which should provide significant support to the construction sector. April data from the British Retail Consortium (BRC) showed a decline in retail sales by 4.4%, compared with preliminary estimates of 1.6%. Thus, households continue to hold back their spending, which could lead to a slowdown in economic growth.

Meanwhile, American statistics turned out to be predominantly negative. The IBD/TIPP Economic Optimism index dropped from 43.2 points to 41.8 points in May, while experts expected 44.1 points, and the dynamics of Consumer Credit Change slowed down in March from 14.12 billion dollars to 6.27 billion dollars against expectations of 15.0 billion dollars. Today, the market's focus is on the speeches of representatives of the US Federal Reserve, including Philip Jefferson, Susan Collins and Lisa Cook.

The Bank of England will hold a meeting in the UK on Thursday: at the moment, analysts are confident that the regulator will keep the monetary policy parameters unchanged, and the interest rate will be fixed at 5.25%. The follow-up statement may contain an assessment of the state and immediate prospects of the national economy, as well as hints on further actions.

Support and resistance

On the D1 chart Bollinger Bands are trying to reverse horizontally. The price range is narrowing from below, reflecting the ambiguous dynamics of trading in the short term. MACD is reversing downwards forming a new sell signal (trying to consolidate below the signal line). Stochastic shows a more confident decline and is currently quickly approaching its lows, indicating risks of the pound being overbought in the ultra-short term.

Resistance levels: 1.2500, 1.2539, 1.2573, 1.2600.

Support levels: 1.2450, 1.2400, 1.2350, 1.2300.

Trading tips

Short positions may be opened after a breakdown of 1.2450 with the target at 1.2350. Stop-loss — 1.2500. Implementation time: 2-3 days.

A rebound from 1.2450 as from support followed by a breakout of 1.2500 may become a signal for opening new long positions with the target at 1.2600. Stop-loss — 1.2450.