Yesterday, the pound/dollar currency pair entered the area of the 32nd figure "ahead of schedule", taking advantage of another weakening of the US currency. This price jump was expected today, following the release of data on the growth of British inflation. However, life makes its own adjustments, although the forecasts mostly came true: the GBP/USD pair broke through the resistance level of 1.3200, consolidated within the 32nd price level and is demonstrating bullish mood. The only difference is that British inflation consolidated the success of the pair's bulls, and did not become a catalyst for price growth. Now, new price ranges and new prospects are opening up for the pound, which are associated with the 33rd figure.
So, today, we have learned the dynamics of the growth of British inflation in July. Looking ahead, we can say that today's release largely offset the negative effect of the failed data on growth in the UK economy in the second quarter. Let me remind you that the volume of GDP fell by a record 20%, reflecting the consequences of the coronavirus crisis. The market was expecting a similar result (although the real numbers turned out to be even worse than forecasted), so all the attention of traders was focused on more operational reports. If they entered the "red zone", thereby indicating a slow economic recovery, the pound would be under significant background pressure. But for now, the current key indicators are on the side of the British currency. Today's release is another confirmation of this fact.
Judge for yourself: the overall consumer price index on a monthly basis rose to 0.4% instead of the projected decline to -0.1%. That is, firstly, the component remained in the positive zone, and secondly, it showed positive dynamics (in June, an increase was recorded to the level of 0.1%). In annual terms, the indicator showed more significant growth - up to 1% (the forecast was at the level of + 0.6%). In this case, the index has been growing for the third month in a row. The core consumer price index (excluding volatile energy and food prices) jumped to 1.8%. For comparison, it is worth noting here that the last time this indicator was at such heights was a year ago - in July 2019. That is, even before the "coronavirus crisis," the index fluctuated in the range of 1.4% - 1.7%.
The rest of the inflationary components also entered the "green zone", significantly exceeding the forecast values. For example, the retail price index, which measures the level of inflationary pressures in the retail industries, jumped to 0.5% mom (four-month high) and 1.6% y / y (three-month high). Another indicator, the producer purchase price index, showed similar dynamics, the growth of which may be an early indication of increased inflationary pressures. An increase was recorded here up to 1.8%, with a forecast of a decline to 0.6%. The producer price index added to the positive picture, also being higher than the forecast values.
Thus, the negative forecasts of most experts were not fully justified. Despite local outbreaks of coronavirus, which were recorded in July in different regions of the UK, the British currency continued to demonstrate consumer activity, "reviving" the country's economy.
July's rise in inflation is strategically important for the pound. First, the strong indicators will ease the pressure on members of the British regulator on the need for further policy easing. By and large, the Bank of England has bought time for further assessment of the current situation. Secondly, today's release will help traders gain a foothold within the 32nd figure. Yesterday's growth of the pair was due only to the weakening of the US currency, while the pound has its own arguments for growth at the moment.
All this suggests that the GBP/USD pair retains the potential for the development of the upward trend. The lack of negative news regarding the prospects for a trade deal between Brussels and London allows traders to focus on other fundamental factors. And so far, these factors add up in favor of the pound.
The technical picture also indicates the priority of long positions: the price on the daily chart is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, including above the Kumo cloud. All this suggests that longs can be considered for the pair - with the first target at 1.3290 (the upper line of the Bollinger Bands on the same time frame). It is better to close long positions, since there will be a "separate struggle"for this price barrier. The stop loss can be placed either at 1.3130 (the Tenkan-sen line on D1) or at 1.3050 (the average Bollinger Bands line on the same time frame). If the price goes below the middle of the 30th figure, the upward scenario will lose its relevance, at least in the medium-term.
