Fundamentals, Technicals Drive British Pound Higher

The British Pound strengthened this morning after the Bankof England said inflation may continue to accelerate above its 2 percenttarget, reducing the chances that the central bank will reignite asset purchases.

The British Pound strengthened this morning after the Bankof England said inflation may continue to accelerate above its 2 percenttarget, reducing the chances that the central bank will reignite asset purchases.

Overnight the BoE said its officials are having a “vigorousdebate” over the risks of inflation. In its inflation report, the central banksaid near-term inflation is expected to be higher than in August, and consumerprice growth above its target through 2011.

Bearish traders got spooked a little following the report,triggering a mild short-covering rally. While the report was enough toestablish support, buying wasn’t strong enough to mount a significant challengeagainst the recent top.

Based on this morning’s action, it looks as if the BoE’s“wait and see” monetary policy approach is not likely to change until thecentral bank gets a chance to assess further economic releases. After Tuesday’ssell-off, it looks as if this morning traders are only making positionadjustments to reflect the central bank’s attitude.

Technically, the GBP USD is trading higher after testing animportant 50% level at 1.5974. In addition, it held yesterday’s low at 1.5951.An uptrending Gann angle at 1.5950 forms a support cluster at 1.5951 to 1.5950.A failure to hold this zone is likely to trigger a break to the .618 level at1.5897.

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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