GBPUSD experienced a rapid decline on Wednesday after the release of British consumer price data, revealing an unexpected drop in core inflation from 7.1% to 6.9%. It became evident that disinflation is slowly spreading beyond the USA. The pound plummeted by nearly 1% against the dollar, breaking through the 1.30 level. From a technical analysis perspective, the price is still holding above the uptrend line, indicating potential for further upward movement. However, to confirm this, it would be beneficial to assess the buying initiative with a corresponding correction to the trend line. Based on the chart below, the target level for this correction could be around 1.282 (marked by the yellow circle). The main target within the upward trend since October last year is the level of 1.3450/1.35, where the major resistance trend line, formed by price extremes in 2015 and 2021, is located:

The British data did not go unnoticed in European trading, as market participants rushed to price in the risk of the rising wave of disinflation affecting the EU economy in the near future (or possibly already). Consequently, the ECB will likely have to temper its ambitions and hint at a pause after the July rate hike. This led to a temporary breakthrough of the EURUSD level of 1.12 and increased investor interest in short-term EU bonds at the start of the session, with 2-year German bond yields falling by approximately 12 basis points today:

Later on, the Euro and bond yields slightly recovered as the revised core inflation assessment for the EU in June showed a slight increase from 5.3% to 5.5%. Of course, compared to the US and UK data, the EU price data currently does not show any hint of disinflation. If this trend continues into July, the Euro would have a significant chance of strengthening its position against major rivals.

The retail sales data in the US for June added some intrigue to the upcoming Federal Reserve meeting in July. A consensus is rapidly forming that after the July rate hike, there will be an uncertain pause (or the end of the tightening cycle). The key indicator for the central bank's policy, the core retail sales, exceeded expectations, increasing by 0.3% month-on-month (forecast was 0%). However, the overall retail sales figure was below the forecast, but this was due to demand fluctuations that do not reflect the main trend (as seen from the behavior of the core retail sales indicator). The dollar responded positively overall yesterday, even attempting to test the 100 level on the DXY index, which it succeeded in achieving today after the release of British inflation data. The DXY dollar index is reaching towards 100.50 and briefly touched 100.30 at the start of the European session.

Market participants also paid attention to the US construction data today, but it did not show any significant deviations. The number of building permits issued in June almost matched the forecast (1.44 million vs. forecast of 1.49 million). The pace of new housing construction slowed by 8% month-on-month.