Better than expected overnight reports out of the United Kingdom should solidify speculation that the Bank of England is prepared to temporarily end its asset buyback program.  Overnight it was reported that U.K. industrial production was up as well as U.K. house prices.  Economists had expected both reports to be flat to lower.  These reports serve as additional signs that the country is emerging from its recession.

The Bank of England’s next meeting is August 6th.  At this meeting BoE officials are expected to keep interest rates unchanged at or near 0% while announcing that its program to purchase government bonds served its purpose and should be temporarily shutdown.  

According to Bloomberg, eight of 12 primary dealers surveyed are calling for the end of the asset buyback program that ended up pumping approximately $212 billion into the U.K. economy over the past five months.  Although the Bank of England used 125 billion Pounds out of an authorized 150 billion, the program served its purpose by helping to contain borrowing costs and stimulate the economy.

At its next meeting on August 6th, the BoE is expected to announce only a temporary end to the program in order to leave open the option of using the additional allocated funds in case the U.K. economy once again turns south.  With the release of the better than expected industrial and house prices report, look for the Bank of England to shift to a “wait and see” stance on any further interest rate easing or economic stimulus.

Technically, the September British Pound is in an uptrend, but the rally may become labored as this market approaches a key 50% retracement price.  Based on the main range of 2.0679 to 1.3486, this 50% price comes in at 1.7083.  The high end of this range began on November 9, 2007 and the low was posted on January 23, 2009.  Traders may see a technical bounce off of this level.  

If the upside momentum remains strong then expect a breakout over 1.7083 to continue on to the .618 retracement price at 1.7931.  The key to sustaining the market today is to maintain the uptrend and the upside momentum.  Short-term this market may be overbought and traders should watch 1.7083 to see if there is any developing weakness following a test of this level.


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