Originally posted by Lumpy
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There are 2 things at work here. Firstly the red sky. A red sky is caused by dust or haze in the atmosphere scattering sunlight - this is often, as in your picture, reflected on the underside of cloud. In order to see this you need the sky around the sun to be clear. So as your photo was taken in the morning, you have clear sky to the east, with a few clouds which are reflecting the red glow.
Secondly the rainbow. Rainbows are always opposite the sun and are caused by light being refracted and reflected by water droplets (usually but not always rain - you can get a fog bow). The rainbow itself does not actually exist, it is an optical "illusion". You will only see a rainbow if the light can be reflected from a raindrop at an angle of exactly 42 degrees to the direction of the light source. This means that you can actually see a rainbow if it is not raining where you are, as long as there are water droplets which can reflect the light back to you at the required angle.
You can see in your picture of the rainbow that it is actually raining to the west, although it looks like most of it could be evaporating before it hits the ground, which is not that unusual (and can result in radar pictures which imply that it is raining when it isn't).
I hope that helps.
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