Better U.K. Trade Deficit Stabilizes British Pound

The British Pound is trading alittle better after a report showed the U.K. trade deficit-narrowed morethan analysts expected in January led by a record surge in exports.

The British Pound is trading alittle better after a report showed the U.K. trade deficit-narrowed morethan analysts expected in January led by a record surge in exports.

Followingthe release of a report from the Office for National Statistics which showedthe deficit contracted to 7.06 billion Pounds (11.4 billion), the British Poundstabilized after a four-day break before reversing to the upside.

Althoughthe export figures were strong, the reaction looks more like a positionadjustment rather than fresh buying. This could be because of tomorrow’s Bankof England policy meeting. Policymakers are expected to leave interest rates ata record low 0.5 percent.

Traderswill be watching domestic interest rates on the heels of a report which showed U.K.shop prices rose at the fastest annual pace in two years in February.Expectations are that investors are leaning toward higher rates as anadjustment to a possible spike in inflation.

The recentsharp rise in commodity prices has no doubt driven up inflationary concerns.Although talk of an interest rate hike may be early, traders are slowly buyingthe Pound as a precaution in anticipation of inflationary news. Recent priceaction suggests that investors are anticipating the Bank of England will beginraising rates in 25 basis point increments in June and then again in October.

Technically,the weekly chart is coming into play at this time as the market begins tostraddle a steep uptrending Gann angle at 1.6145. A failure to hold this levelcould trigger the start of a break to 1.5745. This move seems pretty remote atthis time, but nonetheless is out there. A correction of the current weeklyswing up ties into this forecast nicely. The weekly main range is 1.5345 to1.6343 with 1.5844 to 1.5726 the retracement zone. This makes 1.5745 to 1.5726an important support cluster.

The dailychart is still suggesting an uptrend as long as 1.6030 remains intact.Currently, the main range on this chart is 1.6030 to 1.6343 with 1.6187 to1.6150 a retracement target.

In summary,expectations are for the British Pound to remain in an uptrend but rangebound.Although the BoE appears to be leaning toward hiking rates in June, thisappears to have already been priced in. Inflationary talk is likely to continueto be supportive for the currency so the surprise in tomorrow’s report willlikely be the removal or downplay of inflationary concerns by the central bank.

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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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