Dollar staged a strong rebound overnight and has indeed broke recent high against Sterling. Momentum in the greenback carries on in Asia today as stocks are mixed on concern of bankruptcy of Japan Airlines. Dollar index is back above 78 level after plunging to as low as 77.33. While crude oil remains steady at around 79 level, gold weakens noticeably together with the rebound in dollar and drops back to below 1100 level. Current development argues that dollar's retreat might have completed yesterday already and some more strength could be seen towards the end of the year.

Looking at the dollar index, with 4 hours MACD back above signal line and turned positive, pull back from 78.45 has possibly completed at 77.33 already. Intraday bias is flipped back to the upside for a test on 78.45 first and break will bring rally resumption towards 38.2% retracement of 89.62 to 74.19 at 80.08, which is close to 80 psychological level. On the downside, below 77.33 will indicate that consolidations form 78.45 is still in progress and another falling leg has started. But downside should be contained by 38.2% retracement of 74.19 to 78.45 at 76.82 and bring rally resumption.

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On the economic data front, Japanese manufacturing PMI improved to 53.8 in December. Eurozone M3 money supply growth is expected to rise slightly to 0.4% yoy in November. Swiss KOF leading indicator is expected to climb slightly to 1.73 in December. Chicago PMI is expected to drop to 55.1 in December. The most market moving indicator would probably be oil inventories which is expected to drop -1.7M. Crude oil has been relatively firm since last week's sharp fall in inventory on -4.9M and strength in oil is so far limiting dollar's rebound.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5822; (P) 1.5945; (R1) 1.6024;

GBP/USD's down trend resumes after brief consolidations and reaches as low as 1.5864 so far. At this point, short term outlook will remain bearish as long as 1.6064 resistance holds and GBP/USD is expected to fall further to 1.5706 cluster support next (38.2% retracement of 1.3503 to 1.7043 at 1.5691). On the upside, though, break of 1.6064 will indicate that a short term bottom is formed, possibly with bullish convergence conditions in 4 hours MACD and stronger rebound should then be seen.

In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is is treated as a correction to down trend from 2.1161, has completed at 1.7043. Focus now turns to 1.5706 cluster support (38.2% retracement of 1.3503 to 1.7043 at 1.5691) for confirmation. Break there will argue that whole down trend form 2.1161 is likely resuming for a new low below 1.3503.

On the upside, break of 1.6408 resistance will indicate that fall from 1.6875 has completed and GBP/USD is still bounded in medium term range of 1.5706/7043. In other words, whole medium term rise from 1.3503 might not be finished yet and another rise could still be seen to 1.7332/8236 (50% and 61.8% retracement of 2.1161 to 1.3503) before completion.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
23:15JPYManufacturing PMI Dec53.8--52.3 
09:00EUREurozone M3 Y/Y Nov 0.40%0.30% 
10:30CHFKOF Swiss Leading Indicator Dec 1.731.62 
14:45USDChicago PMI Dec 55.156.1 
15:30USDCrude Oil Inventories -1.7M-4.9M