In the United Kingdom, the pound continued its rise against the U.S. dollar as risk appetite drove both equities and high beta currencies higher after two German senior coalition lawmakers supported giving Spain a line of credit from Europe’s rescue fund.
INFLATION RELIEF
The rally helped erase earlier losses that came after a report showed U.K. September inflation declined to 2.2%, down from 2.5% in August and significantly better than the 5.2% peak in September 2011. This is the slowest rate of inflation since November 2009, which means the Bank of England (BOE) will have no pressure in changing direction on monetary policy.
MORE BOE ACTION?
With the U.K. economy still in a modest recovery, expectations are for the central bank to add more stimulus after current program expires next month. We might get a better look at what the central bank is thinking in tomorrow’s MPC Meeting Minutes report.
TRIANGLE PATTERN
The sterling/dollar (GBP/USD) monthly chart displays a symmetrical triangle that has price nearing the upper border. Last month’s candle hit a double top high at 1.6308 and if price is unable to break above this level, a steady downward move could target the 50- week simple moving average near 1.5800.
BOTTOM LINE
If the Spanish request a bailout before November, the double top pattern will likely be negated and we could see a test of the upper border of the long-term triangle.
