Current trend

The GBP/USD pair is trading with a slight decline, trying to develop the downward dynamics formed at the end of last week, when the local lows of May 17 were updated. The instrument is testing 1.2680 for a breakdown; however, market participants are in no hurry to open new positions ahead of the publication of macroeconomic statistics from the UK.

On Wednesday, May inflation data will be presented: experts expect the Consumer Price Index to slow down from 2.3% to 2.0%, and the Core CPI from 3.9% to 3.5%. In turn, the Producer Price Index Input is projected to decline by 0.3% after rising 0.6% in the previous month, and the PPI Output — from 0.2% to 0.1%, while the Retail Price Index is likely to adjust from 3.3% to 3.1%.

UK inflation data will hit the market the day before the Bank of England meeting, at which interest rates could be cut by 25 basis points. Analysts at Bank of America Corp. assume that officials will keep the rate at 5.25%, fearing undesirable consequences from premature easing of the monetary rate. April inflation and wages data showed an improvement that was not enough to warrant a shift to "dovish" rhetoric, so authorities need further confirmation that the risks of increased price pressure in the services sector have been mitigated.

Tomorrow in the US, May data on Retail Sales will be published: the indicator is projected to grow by 0.3% after zero dynamics in the previous month, and sales volumes excluding cars may add another 0.2%. Today the market will receive statistics on NY Empire State Manufacturing Index, which in June may rise from –15.6 points to –13.0 points.

Support and resistance

On the D1 chart Bollinger Bands are trying to reverse into the descending plane. The price range is expanding, but at the moment it is not keeping up with the surge of "bearish" sentiment. MACD is going down preserving a stable sell signal (located below the signal line). Stochastic is showing similar dynamics, quickly approaching its lows and pointing to the risks of oversold pound in the ultra-short term.

Resistance levels: 1.2700, 1.2734, 1.2771, 1.2800.

Support levels: 1.2650, 1.2600, 1.2568, 1.2539.

Trading tips

Short positions may be opened after a breakdown of 1.2650 with the target at 1.2568. Stop-loss — 1.2700. Implementation time: 2-3 days.

The return of the "bullish" trend with the breakout of 1.2700 may become a signal for new purchases with the target of 1.2771. Stop-loss — 1.2650.