Fundamentals, Technicals Drive British Pound Higher

The British Pound strengthened this morningafter the Bank of England said inflation may continue to accelerate above its 2percent target, reducing the chances that the central bank will reignite asset purchases.

The British Pound strengthened this morningafter the Bank of England said inflation may continue to accelerate above its 2percent target, reducing the chances that the central bank will reignite asset purchases.

Overnight the BoE said its officials arehaving a “vigorous debate” over the risks of inflation. In its inflationreport, the central bank said near-term inflation is expected to be higher thanin August, and consumer price growth above its target through 2011.

Bearish traders got spooked a littlefollowing the report, triggering a mild short-covering rally. While the reportwas enough to establish support, buying wasn’t strong enough to mount asignificant challenge against the recent top.

Based on this morning’s action, it looks asif the BoE’s “wait and see” monetary policy approach is not likely to changeuntil the central bank gets a chance to assess further economic releases. AfterTuesday’s sell-off, it looks as if this morning traders are only makingposition adjustments to reflect the central bank’s attitude.

Technically, the GBP USD is trading higherafter testing an important 50% level at 1.5974. In addition, it heldyesterday’s low at 1.5951. An uptrending Gann angle at 1.5950 forms a supportcluster at 1.5951 to 1.5950. A failure to hold this zone is likely to trigger abreak to the .618 level at 1.5897.

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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