The market broke out as expected through 106.42 and reached the first objective at 107.70. The next level is 109.30.

GBP/USD Feels Pressure of Strong Dollar

Inflation is being reported everywhere, which is the main reason the Bank of England refused to lower rates earlier this month. Since the U.S. is also expected to raise rates later in the year, the U.S. Dollar has become more attractive relative to the Pound.

GBP/USD traders have to watch how the market reacts at the last swing bottom at 1.9362. The last rally from this bottom attracted big selling up at 1.9852. Traders may try to push the Pound through 1.9362 this time to put pressure on the low of the year at 1.9336. A further decline could take the market to 1.9181, the low on March 5, 2007. A break through this area will change the trend to down on the long term monthly charts.

There may be a technically driven short-covering rally on the first test of 1.9362, but look for a selling opportunity if the market trades back to 1.9620.

Swiss Franc Reverses on Close

News that the U.S. may raise rates sooner than expected is weighing on the Swiss Franc. For the past two weeks, the USD/CHF has been trading lower as the value of the Swiss Franc has been firming in anticipation of an interest rate hike later in the year.

Two recent reports out of Switzerland are indicating the possibility of inflation. On Monday, a report citing a low level of unemployment and last week's inflationary news has been putting pressure on the USD/CHF.

With the U.S. now expected to raise rates as early as August instead of December, Swiss traders have been adjusting their positions to accommodate this change. Swiss financial market traders had been trading for a hike in Switzerland in December.

Look for the USD/CHF to firm against the Dollar over the short-run, but do not expect the trend to change to up on this move.