Dollar weakness resumes and made a new low against Euro on the back of rally resumption in US stocks and Gold. S&P 500 closed at new 2009 high of 1052, supported by comments from Warren Buffett that he's buying stocks. Gold also soared to new high of 1017.8 after completing a brief consolidation. Dollar index dipped through 76.47 support and reached as low as 76.41 so far. However, dollar's weakness is not translated to other pairs as AUD/USD is still trading below last week's high of 0.8674. USD/CAD and USD/JPY are also way above last week's low. Nevertheless, as gold is expected to continue it's rally to test 1033.9 high, dollar will remain pressured in near term.
Sterling continue to be the weakest currency this week, falling broadly. In particular, EUR/GBP powered through 0.89 level and is set to take on 0.9 psychological level next. The pound is still weighed down by speculations that BoE will cut reserve rates. Focus will turn to employment report from UK today which is expected to show unemployment rate to climb to 8.0% in July. Sterling is vulnerable to further decline even unless we'll have very strong upside service in today's data. Other data to be released in the European session include Swiss retail sales, which is expected to shown 0.7% yoy growth. Swiss ZEW expectation will also be released. Eurozone CPI is expected to show 0.3% mom, -0.2% yoy reading in August.
Following up on the development in GBP/CHF, this week's sharp fall is inline with expectation after GBP/CHF topped out with a double top pattern (1.8111, 1.8087). From a broader angle, the rebound from Dec low of 1.5111 is treated as correction in the larger down trend from 2007 high of 2.4964. Such correction should have completed after touching 55 weeks EMA. Hence, the current fall is expected to extend beyond this 1.5111 low eventually. A break of mentioned 1.6620 cluster support will affirm this case.
A load of economic data will be released form the US today. CPI is expected to rise 0.3% mom in August with yoy rate moderated from -2.1% to -1.7%. Core CPI is expected to rise 0.1% mom and slowed to 1.4% yoy. TIC capital flow is expected to come in at 65.3B in July. Industrial production is expected to rise 0.7% in August. NAHB housing market index is expected to improve to 19 in September.
Looking at the dollar index, recent fall resumed after 76.46 is taken out and further decline should now be seen towards 75.89 key support. But after all, there is no change in the view that the current decline is the fifth wave of the five wave sequence that started in March at 89.62. Hence we'd expect strong support from around 75.89 level to conclude the fall and at least bring sizeable short term rebound. Break of 77.08 resistance will be the first sign that a bottomed is formed.
EUR/GBP Daily Outlook
Daily Pivots: (S1) 0.8808; (P) 0.8853; (R1) 0.8935; More.
EUR/GBP's rally extends further to as high as 0.8929 today, inch below mentioned target of 38.2% retracement of 0.9799 to 0.8399 at 0.8934. At this point, intraday bias remains on the upside as long as 0.8879 minor support holds and further rally should still be seen. As noted before, sustained trading above 0.8934 will pave the way to 61.8% retracement at 0.9264 next. On the downside, below 0.8879 will suggest that an intraday top is in place and probably bring pull back to 0.8837 resistance turned support. But downside should be contained above 0.8722 support and bring rally resumption.
In the bigger picture, as discussed before, correction from 0.9799 should have completed with three waves down to 0.8399 already. Sustained trading above medium term falling trend line resistance affirms this case. Rise from 0.8399 is tentatively treated as resumption of long term up trend and should send EUR/GBP through 0.9799 high eventually. We'll hold on to this bullish view as long as 0.8722 support holds.