Asian stocks are broadly lower, with Nikkei down over 100pts following nearly 300pts fall in DOW overnight as investors confidence remains weak. US President Obama signed the $787b stimulus plan but the news was ignored by investors. Instead, markets are concerned that CM an Chrysler will subside any time after the automakers asked for additional $16.6b and $5b of government help respectively and plan to cut combined 50k jobs. Focus will turn to announcement of the $50b housing program today, which aims at stemming foreclosures and respective reactions from the equity markets. Dollar retreats mildly from yesterday's high but remains firm so far.
Technically speaking, Dollar index's rally should still be in progress as long as 86.35 minor support holds. Current rise from 77.69 is expected to extend further to retest 88.46 resistance next. Judging on the impulsive nature of such rally, it's tentatively treated as resumption of medium term up trend from 71.31 (or 08 low at 70.70). Hence, 88.46 should be taken out without much resistance and the dollar index should then target 90 psychological level next. However, a break of 86.35 support will suggest that a short term top is in place and bring some pull back to wards 83.58 support before resuming the up trend.
Main focus in the European session will be on BoE MPC minutes minutes for the February meeting which should show unanimous (9-0) votes on a 50 bps rate cut to 1% in Feb 5. The details will likely mirror the information provided in the Quarterly Inflation Report last week. Sterling has been steady this week, supported by slower than expected fall in CPI inflation released yesterday and will need some inspiration to trigger some moves.
Both US building permits and housing starts in January should have reduced to 0.53M from 0.55M a month ago as led by decline in single-family construction. In coming months, further decline in housing starts may be seen as there are still abundant inventories piled. Import price index is expected to have dropped for the 6th month, by -1.4% mom in January following a -4.2% slump a month ago as driven by declines in capital and consumer good prices as well as lower demands for foreign autos. At the same time, export price index probably fell -1.2% mom in January after a plunge of -2.3% in December as the US' major counterparts, such as the Eurozone, are in deep recession. Industrial production is forecast to have plummeted -1.3% mom in January as many industries were affected by contraction in demand both domestically and in overseas. Meanwhile, capacity utilization probably dropped to 72.6% in January from 73.6% in December. Fed Chairman Bernanke will give speech about the US economic outlook at 1730 GMT and FOMC minute for January's meeting will be released at 1900 GMT.
Wholesale trades in Canada is anticipated to have slid 1% in December, the 3th consecutive monthly decline, after falling 1.6% and 1.8% in November and October respectively as corporations are cutting investments amid global recession.
Earlier in Asian session, Australia's Westpac leading economic index contracted at an annualized rate of 1.2% in December, the second consecutive month for the index to fall to negative territory, following a decline of 0.5% (upwardly revised) a month ago. With 7 out of 8 components of the index recorded declines in December, it's highly likely that Australia will enter recession in coming months. Leading indicator in Japan probably plunged in December from 79.8 in the previous month as sharp falls in GDP and industrial production should have dampened sentiment.
GBP/USD Daily Outlook
. Daily Pivots: (S1) 1.4136; (P) 1.4223; (R1) 1.4323; More
GBP/USD continues to stay in tight range below 1.3418 minor resistance today as sideway trading is still in progress. Short term outlook remains rather mixed. Though, with 1.4138 minor resistance intact, further fall is mildly in favor. Break of 1.4051 will confirm that rebound from 1.3503 has completed at 1.4984 and bring retest of this low. However, above 1.4318 minor resistance will dampen this case. Further break of 1.4605 will argue that rebound from 1.3503 is still in progress for another rise to above 1.4984 resistance before completion.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Price actions from 1.3503 is treated as correction/consolidation in the larger down trend from 2.1161. It's uncertain whether such correction from 1.3503 is developing into sideway consolidation below 1.5722 or a stronger rebound. Nevertheless, as long as 1.3503 low holds, such consolidation is still in favor to extend further with another rise before completion. Decisive break of this support is needed to confirm down trend resumption.