Short-Covering Rally May Be Setting Up Lower Top in British Pounds

The British Pound posted a slight gain on Tuesday as the weaker Dollar led traders to lighten up short-positions. News that two major U.K. retailers posted better than expected earnings reminded traders that it is possible a recovery in the economy is starting.

The news was enough to trigger short-covering but in order for the trend to turn higher, the economy has to show improvements in the housing and mortgage markets. Traders will remain skeptical about the economy until the Bank of England begins to curtail its quantitative easing plans.

The British Pound posted a slight gain on Tuesday as the weaker Dollar led traders to lighten up short-positions. News that two major U.K. retailers posted better than expected earnings reminded traders that it is possible a recovery in the economy is starting.

The news was enough to trigger short-covering but in order for the trend to turn higher, the economy has to show improvements in the housing and mortgage markets. Traders will remain skeptical about the economy until the Bank of England begins to curtail its quantitative easing plans.

The daily swing chart indicates a series of lower bottoms may be developing which is the first sign of a change in trend to the downside.  This next rally has to set up a lower top to begin another leg down.