General analysis GBPUSD for 01.07.2022

Current dynamics

GBP/USD fluctuates around 1.21500 amid UK VAT rate debate and US macro news

GBP/USD after a week long decline failed to reach 1.22000 during yesterdays correction and the downtrend might continue in the near term, as a possible cut of the VAT rate might not be good for the GBPs price dynamics.

At the moment there is no decision to cut the VAT rate in the UK, and it seems that discussions on that prospect have not had a significant impact on the behavior of traders on the pair. According to Steve Barclay (Chief of Staff to the Prime Minister of Great Britain), cutting the VAT rate is likely to have a positive effect on the economic growth, to stimulate business activity and ease the burden on ordinary citizens and to reduce the risk of a general economic downturn.

Fresh data on the British GDP also did not provoke any sharp price movements on the pair in the market, as they matched the expectations of the growth rate of 0.8% in the last reporting quarter and of 8.7% for the year.

On the US side, the biggest impact on the pair was made by the news on consumer spending cuts and an unexpectedly large increase in inflation.

Thus, the increase in consumer spending in May was 0.2% against 0.8% in April. Spending on services then increased by 0.7%, household spending on goods fell by 3.2%, energy prices increased by 35.8% and food prices by 11%. The growth of basic consumer prices in May also showed a decline of 0.2% over the month, amounting to 4.7%. Such situation, along with the Feds raising the key rate, creates the real preconditions for the economic recession. Analysts also forecast GDP decline in the next quarter.

Inflation in the U.S. is at its highest point in the past forty years, thus in May the annual inflation rate was 8.6%. According to the Fed Chairman Jerome Powell, the Reserve System specialists in this situation of increased unpredictability are beginning to realize that they understand the inflation mechanisms not so well as they would like to. The Fed hopes that inflation has now reached its maximum levels, but they do not exclude its further growth. In any case, we should not expect any easing of monetary policy in the near future.

Among the important macroeconomic news that might affect the price movement of GBP/USD pair in the nearest future we should mention the manufacturing activity index (PMI) for Great Britain and the manufacturing activity index (PMI) from ISM for the United States in June, which will be released later today.

Support and resistance levels

Alligator is hungry: his mouth is wide open, his jaw (blue line) hovers high above his lips and teeth (green and red lines), the instrument is in a downtrend. The nearest fractal below the alligators teeth (red line) is at 1,21260. Awesome Oscillator (AO) and Accelerator Oscillator (AC) are both in the red area, the bars are close to the zero level, which is a strong confirmatory sell signal.

• Support levels: 1.21260, 1.20870, 1.20190.
• Resistance levels: 1.21970, 1.22600, 1.23170.

Trading scenarios

• Long positions should be opened at the 1.21970 with a target of 1.22600 and a stop loss at 1.21650. Implementation period: 1-2 days.
• Short positions can be opened above the level of 1.21260 with a target of 1.20870 and a stop-loss at the level of 1.21650. Implementation period: 1-2 days.