Breakdown of the latest developments on the global exchanges
Aug 18, 2021, 10:09 AM GMT

UK Inflation Fell in July, the Price Action of the GBPUSD is Establishing a Pullback

uk inflation fell more than expected in July

Today's inflation data managed to stave off GBPUSD's newly emerging downtrend temporarily. However, substantial bearish sentiment remains. You can read more about it from our comprehensive analysis of the pair.

British headline inflation fell by 0.5 per cent in July, surpassing the consensus forecasts. The bigger than anticipated drop in consumer prices follows a global trend of easing demand.

Economic activity in Britain is, on the whole, growing faster than BOE's baseline recovery scenario estimates. UK's gross domestic product and employment growth have both exceeded expectations. Even still, this does not seem enough to strengthen the pound against the advancing greenback.

The price action of the GBPUSD is currently establishing a minor bullish pullback before the broader downtrend can resume

As can be seen on the hourly chart above, the GBPUSD is establishing a pullback presently, which is part of a broader downtrend. The inflation data catalysed the pullback, but it is interesting to point out that it emerged from the 61.8 per cent Fibonacci retracement level at 1.37283.

The latter represents the last major support that the downtrend has to penetrate before it can become quite robust, which is why it is unsurprising that a temporary break emerged just here. The pullback is, in other words, most likely a false movement before the price action can resume heading lower.

Its temporary nature is underpinned by the MACD indicator, which signals a momentary prevalence of bullish bias in the market.

The price action is currently probing the minor 0.236 Fibonacci retracement (as measured against the last downswing on the hourly chart) at 1.37620. This is the first level where the pullback could be terminated. Accordingly, if the price action breaks out above it, the next potential turning point can be found at the minor 0.382 Fibonacci at 1.37842.

Inflation falters more than anticipated in July

Headline inflation in Britain was reported at 2.0 per cent earlier today by the Office for National Statistics. This measures a 0.5 per cent drop from the multi-month peak that was reached a month prior in June.

UK inflation fell by 0.5 per cent in July, reaching 2.0 per cent

The consensus forecasts were anticipating a smaller contraction of the Consumer Price Index (CPI) to 2.3 per cent.