GBP/USD is showing slight growth, recovering from a long decline on July 17 from the record July highs of last year. At the moment, the pair is testing the 1.2700 mark again for an upward breakout, but there are no fundamental reasons for the steady growth of the British currency in the market.
The upward correction is developing after a sharp drop on Monday, caused by a massive exit of investors from "carry trade" deals amid growing concerns about a slowdown in the global economy.
The US dollar reacted to the publication of July labor market data on Friday, which led to a revision of forecasts regarding a possible Fed interest rate cut by the end of the year. Analysts expect the Fed to cut the rate by 50 basis points in September. Today, the probability of such a scenario is estimated at 80%. Last week, the Bank of England cut the rate by 25 basis points and expressed its readiness to continue adjusting monetary policy in response to easing inflation risks.
Macroeconomic statistics provided some support to sterling. In July, the volume of comparable retail sales from the British Consortium of Retailers (BRC) increased by 0.3% after a decrease of 0.5% in the previous month. The index of business activity in the construction sector rose from 52.5 to 55.3 points, exceeding the forecast of 52.7 points, due to the expansion of construction of residential and commercial buildings. This indicates the activation of all key sectors of the British economy, which supports the risks of accelerating inflation and allows the Bank of England to be cautious about further rate cuts.
The main forex indicators also support current trends. The Bollinger bands on the daily chart show a steady decline. The MACD retains a sell signal. Stochastic turned down again after an unsuccessful attempt at growth.
Trading recommendations
- Long positions are relevant: after a confident breakdown up to the level of 1.2730. The target will be 1.2817. We will set the stop loss at 1.2690.
- With a rebound from the 1.2730 level, as followed by a breakdown down the 1.2700 mark, we will form sales with a target of 1.2600. We will place the stop loss at 1.2750.