GBP USD Surges on Interest Hike Expectations

The GBP USD jumped overnight on renewed talk ofan interest rate hike by the Bank of England.Traders reacted positively to the news that the Office for National Statisticsreported a rise in consumer inflation more than double the Bank of England’s 2%target.

The GBP USD jumped overnight onrenewed talk of an interest rate hike by the Bank of England.Traders reacted positively to the news that the Office for National Statisticsreported a rise in consumer inflation more than double the Bank of England’s 2%target. The actual report showed that inflation rose at a 4.4% annual pace inFebruary, up from 4% in January. Economists and analysts had expected a smallerrise of 4.3%.

After this morning’s report andsubsequent explosive reaction, it became clear that traders are reading today’sinflation report as a sign that interest rates may rise sooner than expected.Some traders had been attempting to price in a possible rate hike as early asMay while the majority favored a late summer time period.

Technically the British Pound isrebounding after a nearly two-week setback. This morning the Sterling is rapidly approaching the January2010 top at 1.6475. This morning’s action also helped the market regain a steepuptrendingGann angle on the weekly chart. Support is now being established on this4x1 angle at 1.6225.

Greater demand for risk is alsosupporting the higher yielding currencies. The rise in the global equitymarkets after a hard, short-term sell-off is driving up the Australian, New Zealandand Canadian Dollar. This could be a sign that trading conditions are returningto normal now that the situation in Japan seems to be under control. Inaddition, traders appear to be happy about the way things are unfolding in Libyaafter pricing in uncertainty over the past 10 days.

Technically the Australian Dollar istrading sharply higher following a close over a key Fibonacciretracement level at 1.0045. After successfully testing the psychological1.0000 level, the Canadian Dollar has regained more than half of its correctionfrom 1.0321 to 1.0045. Expectations are for these rallies to continue as longas demand remains strong for equities. Traders should note that if complacencysets in, the markets may be vulnerable to news driven events.

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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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