GBP USD Rallies into Retracement Zones

Better than expected overnight reports out of the United Kingdom shouldsolidify speculation that the Bank of England is prepared totemporarily end its asset buyback program. Overnight it was reportedthat U.K. industrial production was up as well as U.K. house prices.Economists had expected both reports to be flat to lower. These reportsserve as additional signs that the country is emerging from itsrecession.

Daily Analysis

GBP USD

Better than expected overnight reports out of the United Kingdom should solidify speculation that the Bank of England is prepared to temporarily end its asset buyback program. Overnight it was reported that U.K. industrial production was up as well as U.K. house prices. Economists had expected both reports to be flat to lower. These reports serve as additional signs that the country is emerging from its recession.

The Bank of England next meeting is August 6th. At this meeting BoE officials are expected to keep interest rates unchanged at near 0% while announcing that its program to purchase of government bonds served its purpose and should be temporarily shutdown.

According to Bloomberg, eight of 12 primary dealers surveyed are calling for the end of the asset buyback program that ended up pumping approximately $212 billion into the U.K. economy over the past five months. Although the Bank of England used 125 billion Pounds out of an authorized 150 billion, the program served its purpose buy helping to contain borrowing costs and stimulate the economy.

At its next meeting on August 6th, the BoE is expected to announce only a temporary end to the program in order to leave open the option of using the additional allocated funds in case the U.K. economy once again turns south. With the release of the better than expected industrial and house prices report, look for the Bank of England to shift to a “wait and see” stance on any further interest rate easing or economic stimulus.

The GBP USD is currently trading inside of two major ranges.  The first major range is the November 2007 top at 2.1160 to the January 2009 bottom at 1.3501.  This range creates a retracement zone at 1.7331 to 1.8234.

The second major range was formed by the July 2008 top at 2.0156 to the January 2009 bottom at 1.3501.  This range forms a retracement zone at 1.6828 to 1.7614.

This week the GBP USD crossed over 1.6828 putting it in a position to rally further to the next retracement level at 1.7331.  The charts indicate that over the short-run, the best retracement cluster and next major upside target is 1.7331 to 1.7614.

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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