The Consumer Price Index growth rate in the United Kingdom (year on year) was 2.4% in June. It is the same as a month before (2.4% y/y), but clearly, less than the market anticipated (2.6% y/y). In the light of forecasts, the core indicator was to remain at the level of 2.1% y/y but fell to 1.9% y/y. After unambiguously disappointing data GBP/USD from around 1.31 fell about 90 pips.
The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation. A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.
To address inflation, the Bank of England may raise interest rates. However, the BoE relies on the PCE Deflator as its primary gauge of inflation because the CPI does not account for the ability of the consumer to substitute out of CPI's set. Price changes tend to cause consumers to switch from buying one good to a less expensive-other, a tendency that the fixed-basket CPI figure does not yet account for.
Let's now take a look at the GBP/USD technical picture at the H4 time frame. After the worse than expected data were releases, the pair dropped about 90 pips immediately, and the technical support at the level of 1.3049 was breached. The pair made a local low at the level of 1.3008 and then bounced a little during the overnight trading session, but now is starting to fall towards the 1.3000 level again. This is a major technical support, so if it is violated, the next mid-term target fo rbears is seen at the level of 1.2775.
