Headline U.Okay. inflation accelerated from 3.4% year-on-year to three.6% in June whereas the annual core CPI climbed from 3.5% to three.7% as a substitute of holding regular as anticipated.
How did our watchlist setups for this top-tier catalyst fare?
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The Setup
Occasion Consequence:
The UK’s shopper worth inflation accelerated to three.6% year-on-year in June, up from 3.4% in Might, marking the best studying since January 2024 and doubtlessly dampening expectations for aggressive Financial institution of England charge cuts within the close to time period.
Key Factors from the June CPI Report
Headline CPI rose to three.6% yearly, above the 3.4% consensus forecast, with month-to-month inflation climbing 0.3% versus 0.1% in June 2024
Core CPI (excluding power, meals, alcohol, and tobacco) elevated to three.7% from 3.5% in Might, signaling persistent underlying worth pressures
CPIH (together with proprietor occupiers’ housing prices) climbed to 4.1% from 4.0%, remaining nicely above the Financial institution of England’s 2% goal
Transport prices, significantly motor fuels, offered the most important upward contribution to the month-to-month change, whereas housing and family companies provided some offset
Providers inflation held regular at 4.7%, whereas items inflation accelerated from 2.0% to 2.4%, marking the best items inflation since October 2023
Meals and non-alcoholic drinks inflation edged as much as 4.5% from 4.4%, persevering with a 3rd consecutive month-to-month improve
Elementary Bias Triggered: Bullish GBP Setups
This week’s market drama in all probability had merchants reaching for his or her stress balls greater than ordinary. It began with Trump’s weekend bombshell – threatening 30% tariffs on EU and Mexico by August 1st. Markets initially freaked out, then shrugged it off as “simply one other negotiating tactic.”
Tuesday’s US CPI hit precisely as anticipated at 2.7%, however the satan was within the particulars. Furnishings and equipment costs spiked, seemingly signaling tariffs are lastly biting shoppers. This in all probability spooked bond markets greater than equities, with the 10-year yield leaping to month-high ranges.
Wednesday introduced the week’s most weird subplot – nameless stories that Trump was prepared to fireside Fed Chair Powell. The greenback and bonds went haywire earlier than Trump shortly dismissed it as “extremely unlikely.” Traditional Washington drama that reminded everybody why Fed independence issues.
Thursday’s knowledge dump was the place fundamentals lastly gained. US retail gross sales crushed expectations (+0.6% vs +0.2% forecast) and jobless claims plummeted to 221k – approach beneath the 234k estimate. This in all probability bolstered the “American shopper is constructed totally different” narrative maintaining recession fears at bay.
Friday capped issues off with Fed Governor Waller going full dove, calling for a 25bp July reduce. The greenback took a beating, falling practically 1% earlier than recovering.
EUR/GBP Internet Bullish GBP Occasion end result + Danger-OFF Situation = Arguably greatest odds of a web optimistic end result
EUR/GBP 1-hour Foreign exchange Chart by TradingView
In our watchlist, we noticed EUR/GBP approaching R1 (.8690) close to the .8700 main psychological mark whereas forming a bearish divergence, suggesting that ceiling may maintain in case the U.Okay. CPI report is available in stronger than anticipated. Our thesis was primarily based on decrease U.Okay. tariffs publicity versus uncertainty surrounding US-EU commerce negotiations.
Though the pair already retreated from the resistance zone forward of the inflation launch whereas Uncle Sam’s personal inflation figures ushered in a little bit of threat aversion, worth managed a quick pullback then resumed its bearish transfer when the U.Okay. numbers had been printed, dipping to the .8650 minor psychological mark.
Rumors of Trump on the point of hearth Powell prompted forex markets to whipsaw later within the day, main EUR/GBP to spike again to the .8700 space midweek earlier than draw back strain picked up once more, even after the U.Okay. jobs report fell in need of estimates the following day.
Rising doubts concerning the EU and the U.S. reaching a commerce settlement anytime quickly appeared to maintain the shared forex on shaky floor, together with subdued remaining inflation readings for the area, ultimately dragging EUR/GBP to the following assist zone on the pivot level degree (.8640).
Not Eligible to maneuver past Watchlist – Bearish GBP Setups and GBP/USD lengthy setup
GBP/USD: Bullish GBP Occasion end result + Danger-On Situation
GBP/USD 1-hour Foreign exchange Chart by TradingView
Whereas the occasion supported a bearish setup on GBP/USD, broader market sentiment main as much as the precise U.Okay. CPI launch didn’t fairly align with a risk-on view. Traders had been on edge whereas making an attempt to remain on prime of Trump’s tariffs bulletins, combined Chinese language knowledge, and warmer than anticipated U.S. inflation.
Consequently, there wasn’t sufficient bullish momentum to propel Cable as much as the pullback areas we eyed near the descending development line even when U.Okay. CPI knowledge got here in stronger than anticipated. As a substitute, the pair already established contemporary weekly lows across the 1.3400 assist zone earlier than making a feeble transfer increased when the numbers had been printed.
Larger volatility stemming from market nervousness on Trump presumably firing Fed head Powell led to a a lot bigger pullback to the 100 SMA dynamic resistance within the subsequent buying and selling session, earlier than GBP/USD dipped then bounced off the 1.3400 deal with once more.
GBP/JPY Brief: Internet Bearish GBP Occasion end result + Danger-Off Situation
GBP/JPY 1-hour Foreign exchange Chart by TradingView
Guppy had been consolidating inside a descending triangle sample forward of the U.Okay. CPI launch, doubtlessly gearing up for a breakdown in case the precise outcomes fall in need of estimates. The pair already staged a bullish breakout even earlier than the U.Okay. inflation report was printed, however the transfer was primarily pushed by yen weak point on account of rising JGB yields from election jitters.
Stronger than anticipated U.Okay. inflation knowledge didn’t fairly set off a lot of a bullish response from this pair, as safe-haven currencies just like the yen held their floor whereas rumors of Trump presumably firing Powell circulated. GBP/JPY tumbled to the pivot level degree (198.51) as risk-off flows picked up then rebounded when Trump downplayed the probability of sacking the Fed Chair.
GBP/AUD Brief: Bearish GBP Occasion end result + Danger-On Situation
GBP/AUD 1-hour Foreign exchange Chart by TradingView
This sterling pair had already been working with sustained bearish strain from the earlier week, weighed by a dovish BOE MPC cut up and a shock RBA determination to maintain charges on maintain as a substitute of slicing.
GBP/AUD appeared to type a bearish flag at its long-term assist degree simply above the two.0500 main psychological mark, so our watchlist anticipated attainable downtrend continuation if the U.Okay. CPI falls in need of estimates.
Whereas worth dipped barely beneath the short-term consolidation sample on some indicators of resilience in Chinese language knowledge through the Asian session, a surge in risk-off flows stemming from talks of Trump presumably firing Powell took the pair proper again above the two.0500 deal with earlier than the U.Okay. inflation report was launched.
Stronger than anticipated U.Okay. inflation figures allowed the pair to maintain the rebound, climbing again above the 100 SMA dynamic inflection level and increasing its rally previous the two.0600 deal with when Australia’s jobs report fell in need of estimates the following day. GBP/AUD carried on to check the two.0700 resistance because the U.Okay. jobs launch got here in stronger than anticipated within the following session.
The Verdict
Our elementary evaluation and watch state of affairs primarily based on a risk-off market atmosphere and a web bullish GBP response leaned in favor of a brief EUR/GBP setup.
Our technical evaluation pinpointed the .8700 resistance zone close to S1 as a possible space of curiosity for brief entries forward of the occasion, plus the pair presumably maintaining its actions beneath this ceiling ought to the market temper proceed to lean risk-off after the U.Okay. CPI launch.
Though intraday swings in sentiment led to extra elevated volatility than ordinary, EUR/GBP managed to maintain its head beneath the .8700 ceiling highlighted in our watchlist and resume its selloff when the EU CPI remaining readings highlighted a distinction in inflation developments with the U.Okay.
Total, we assess this as seemingly supportive of a web optimistic end result since GBP was already having fun with some upside momentum main as much as the inflation launch and managed to renew its advance versus EUR after market volatility settled.
Nonetheless, commerce administration and execution would have performed a minor function, as whipsaws might need been difficult to navigate however would have additionally provided one other alternative to enter on the .8700 resistance earlier than EUR/GBP bearish momentum picked up.
Key Takeaways: When Favorable Fundie Information Doesn’t Assure Robust Optimistic Outcomes
The UK inflation shock completely illustrates a vital buying and selling actuality: even when financial knowledge strongly helps your directional bias, market reactions might be disappointingly muted or utterly opposite to expectations. Regardless of UK CPI accelerating to three.6% (vs 3.4% forecast) and core inflation leaping to three.7% – clear bullish alerts for GBP – the pound’s response was surprisingly subdued and we must always have gotten a way more favorable response in EUR/GBP.
Why? As a result of markets not often commerce in isolation. Throughout this week, competing narratives dominated: Trump’s tariff threats, Fed Chair firing rumors, and broader threat sentiment shifts overshadowed what ought to have been an easy bullish catalyst for sterling. The GBP/USD setup, which technically aligned completely with a bullish state of affairs, struggled to realize significant traction regardless of the inflation beat.
This disconnect between knowledge and worth motion occurs extra usually than merchants understand. You’ll be able to nail the elemental name, place your self at perfect technical ranges, and nonetheless watch the market shrug off your “good” setup. Exterior components – whether or not geopolitical drama, cross-asset correlations, or easy market exhaustion – steadily hijack anticipated reactions.
That is exactly why inflexible place sizing and predetermined exit methods matter greater than being “proper” concerning the knowledge. When markets ignore sturdy fundamentals, merchants with out correct threat administration usually double down on shedding positions, satisfied the market will “come to its senses.”
The lesson? Commerce what the market provides you, not what the info suggests it ought to provide you with. Your cease loss doesn’t care about your elementary thesis.
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