British Pound Rallies on Inflation News

The Euro and the British Pound arerising against the Greenback, sending the Dollar Index to its lowest levelsince November.

The Euro and the British Pound arerising against the Greenback, sending the Dollar Index to its lowest levelsince November.

The Euro is appreciating amidspeculation European central banks will be quicker to increase borrowing costsfollowing last week’s hawkish comments from European Central Bank PresidentTrichet. In addition, there is speculation that the Euro region’s policymakerswill succeed in preventing the sovereign debt crisis from deepening.

One key factor driving the singlecurrency higher this morning is the perception by traders that risk has beenreduced. Once this issue is overcome, traders will be allowed to focus on thepossibility of a rate hike in the near future. This is giving traders the confidenceto buy the Euro.

Ahead of Spain’s plan to sell 6 billionEuros of 10-year government bonds, Euro Zone finance ministers pledged tostrengthen the Euro area’s safety net. The perception at this time is that Europe is doing everything it can to manage the debtcrisis situation and have been quite effective. A strong showing in the Spanishbond sale will be a sign that the crisis-management policies are working.

U.K. statistics showed December consumerprice inflation accelerated by 3.7 percent, surpassing the 3.4 percent forecastby economists and driving the British Pound higher.

Look for the Euro to accelerate tothe upside on a trade through 1.3434. Upside momentum should build at thatpoint with a possible target of 1.3577.

The British Pound accelerated whenit crossed 1.5911. Since this market has rallied since bottoming at 1.5345, itis possible that the inflation news may have already been priced into themarket. Although the recent main top at 1.6299 remains a viable target, theremay be another pull-back into 1.5935 to 1.5822 before moving higher.

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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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