GBP/USD consolidates near 1-month highs at 1.2650

• GBP/USD is consolidating in fairly quiet trade near 1-month highs at 1.2650.
• Volumes this week will be reduced due to public holidays in the US (Monday) and UK (Thursday and Friday).
• However, the flurry of US data to be released soon means that the outlook for volatility remains high.

Trading conditions are calm on Monday due to the lack of participants in the US market due to the Memorial Day holiday. However, the GBP/USD is trading near the one-month highs it hit last Friday at the 1.2670 area, just below 1.2650, amid an upbeat tone in risk appetite at the start of the week. The pair is on track to rise around 4.0% from mid-month lows around 1.2150, a move that analysts mainly attribute to the weakening of the US dollar, which has continued on Monday.

This means that the pair is on track to post a monthly gain of around 0.6%, its first monthly gain of the year. However, analysts remain cautious on the prospects for a more significant rebound in the pair, given the divergence between the outlook for the US and UK economies and the associated divergence between the outlook for policy the Fed and the Bank of England. Both factors continue to favor the dollar, according to analysts, who suggest a return to recent lows is more likely than a move above the 1.30 mark.

In fact, data released by the US Commodity Futures Trading Commission (CFTC) last Friday showed that, as of last Tuesday, investors continued to add to net short sterling positions, despite the rebound from mid-month lows. This suggests that the appetite to sell the rally remains.

GBP/USD trading volumes are expected to pick up on Tuesday with the return of US market participants, but are likely to decline again from Thursday through the end of the week given the closing of markets. UK markets for a long bank holiday weekend in celebration of the British Queen’s Platinum Jubilee. That doesn’t mean there won’t be volatility. In fact, traders are bracing for a barrage of US data to be released this week.

Conference Board Consumer Confidence Survey data will be released on Tuesday, May ISM Manufacturing PMI Survey data and April JOLT Jobs data on Wednesday, Currency data on Thursday ADP private employment report for May and the official May labor market report on Friday. After their recent prolonged drop, USD bulls might be looking for an opportunity to reload long positions

Technical levels