GBP USD Needs Time to Build Better Support Base

This week’s strong equity markets signaled a demand for higher riskassets and helped drive the GBP USD sharply higher. The appreciation inthe Pound encouraged traders to forget about the widening U.K. deficitand contracting economy.  Technically this pair may need to solidify the support base before rallying.

This week’s strong equity markets signaled a demand for higher risk assets and helped drive the GBP USD sharply higher. The appreciation in the Pound encouraged traders to forget about the widening U.K. deficit and contracting economy.

The Bank of England also voted to keep interest rates unchanged but managed to implement another round of quantitative easing to the tune of a little more than $75 billion.

The action by the BoE shows that the central bank still believes that the world economy remains in a “deep recession.” Pumping fresh money into the banking and financial system may be its attempt to repair the “fragile” condition that continues to linger after several rounds of quantitative easing.

All the news was not doom and gloom however as the BoE remained slightly optimistic about the economy as “surveys at home and abroad show promising signs that the pace of decline has begun to moderate.”

Technically the GBP USD remains in a downtrend on the weekly chart. There is a support base being built, and the chart pattern shows there is room to the upside with 1.7330 the next upside target. The problem is there may not be enough buying interest or momentum to take the market to this retracement level for several months.

Based on the chart pattern and the fundamentals, one more test of the bottom at 1.3501 may be needed to solidify the bottom.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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