GBP/USD: the inflation grows faster than the earnings

Current trend

Today the main driver of the pair dynamics is June UK Consumer Price indices publication. Despite the expectations, the inflation has fallen mainly due to the decrease of the gas and diesel fuel prices. The Consumer Price Index is 2.6%, the Core Consumer Price Index – 2.4%. The market was disappointed by the publication, as the high inflation pushed the Bank of England to the interest rate increase, and now the monetary policy tightening measures can call into question.

Still the GBP is under the pressure of another factor. At the moment the inflation growth, despite the latest decrease of the indicators, is still significantly faster than the growth of the earnings. In May the Average Earnings including Bonus grew by 2.0%, and Average Earnings excluding Bonus – only by 1.8%. All the factors can lead to the decrease of the purchasing power and of the GDP consequently. Taking into the consideration the difficulties that will appear while the implementation of Brexit, the GBP positions are doubtful.

Support and resistance

Technically the price is being corrected to the middle line of Bollinger Bands around 1.3020, and after the consolidation below, it can go lower, to the level of 1.2910 (Fibonacci correction 38.2%) and further, to the border of the upward channel.

Technical indicators confirm the decrease; MACD histogram has crossed the signal line downwards and is decreasing in the positive zone. Stochastic is pointed downwards, but as it is near the oversold area, the price can reverse and grow to the week maxima at the area of 1.3125 (Fibonacci correction 36.2% for the long-term trend).

Support levels: 1.2985, 1.2910, 1.2850.

Resistance levels: 1.3020, 1.3100, 1.3125.

Trading tips

Short positions can be opened after the consolidation below the middle line of Bollinger Bands from the level of 1.2985 with the targets at 1.2910 and 1.2850 and stop loss at 1.3030.

In case of the rebound of the price from the level of 1.3020 long positions will become relevant with the targets at 1.3100, 1.3125 and stop loss at 1.2980.