GBP USD Poised to Open Higher on Positive News from Bank of England

The U.S. Dollar is expected to open higher against most majors this morning as demand for risk dropped overnight after European stock markets weakened. Economic news released last night and early this morning also contributed to movement in the foreign currency markets.

The U.S. Dollar is expected to open higher against most majors this morning as demand for risk dropped overnight after European stock markets weakened. Economic news released last night and early this morning also contributed to movement in the foreign currency markets.

The U.S. Dollar has traded under pressure all week because of increased demand for higher yielding assets. Much of the rally has been attributed to the fact that the U.S. Dollar is currently the cheapest funding currency. Record low borrowing costs are contributing to the weakness in the Dollar and the strength in higher yielding assets. Investors have been selling the Dollar to fund their appetite for risk.

Early this morning the Bank of England voted to leave its benchmark interest rate unchanged at 0.50%. In addition, no changes were made to its quantitative easing program. The big concern for traders was whether the BoE would reduce the interest rate it pays on reserve bank deposits. The BoE decided to leave this rate unchanged also which helped give the GBP USD a slight rise after the announcement.

Although recent economic reports have presented evidence that the U.K. economy may be stabilizing, the central bank is still concerned that the economy is vulnerable to relapses. Because of this, the BoE is likely to continue to apply stimulus to the economy to assure that it remains on path to recovery.

Technically, the British Pound is running into resistance inside of a retracement zone formed by the August range. This zone is 1.6577 to 1.6687. Yesterday, this currency rose to 1.6625 before attracting selling pressure. A trade through 1.6627 will turn the main trend to up.

Weaker equity and energy markets could help rally the USD CAD today. Technical factors indicate that traders are shying away from the long side of the Canadian Dollar at current price levels. Traders are also heeding a warning from the Bank of Canada from last month that expressed concern that a high priced currency will damage the economic recovery.

The NZD USD is expected to trade weaker today. Early last night, the Reserve Bank of New Zealand voted to leave interest rates unchanged at 2.5% and also warned that further rate cuts are possible because of the “patchy recovery” taking place. The RBNZ now believes that additional stimulus may be needed to fight rising unemployment. News that exports fell by the most in 58 years was evidence that the rapid rise in the currency is hurting foreign demand. This could limit the economic recovery.

News that Australian employers cut almost twice as many jobs as economists forecast is putting pressure on the AUD USD overnight. This bearish news comes on top of a report earlier in the week that Aussie retail sales fell. Traders are cutting long positions now that it looks like the Reserve Bank of Australia may postpone its next rate hike from October to December.

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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