Dollar opens the week mildly weaker as markets are disappointed with the rather mild language from G7 statement. There have be a lot of rhetoric about dollar's weakness ahead of the meeting but in the end, G7 finance chiefs refrained from making any criticism on it. Instead, the group just said that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability, which is essentially unchanged from prior stance. On the other hand, yen is sent lower on Japan Finance Minister Fujii's comments that if yen shows excessive moves in a biased direction, we will take action, leaving room for the government to intervene. But after all, the weakness in dollar and yen is so far limited, showing that the comments were probably priced in in Friday's reversals. Dollar and yen might regain some footing as the day goes.

Main focus today will turn to ISM Non-manufacturing Index. The headline reading is expected to have improved to 50 in September from 48.4 in the previous month. This would be the highest level since September 2008 and the first time for the services sector to be in expansion in a year. In August, the business activity component rose to 51.3 while the new orders component also rose to 49.9. We believe both index should have been above 50 in September. However, the employment component, which climbed to 43.5 in august from 41.5 in July, might not have shown much improvement in September as non-manufacturing patrol dropped -212K in September following a -135K fell in the previous month.

Other focuses include services PMI from Eurozone and UK, Eurozone Sentix Investor Confidence and retail sales.

Looking at the dollar index, while some consolidations might be seen below 77.47, further rise is still in favor with 76.50 minor support intact. Above 77.47 will bring rally resumption towards 78.93 key resistance for confirming medium term bottoming in the index. However, note that a break of 76.50 will indicate that whole rebound from 75.83 might have completed already and will turn focus back to this low.

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GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5844; (P) 1.5900; (R1) 1.5998; More

GBP/USD recovers mildly today but still, with 1.6027 minor resistance intact, intraday bias remains cautiously on the downside for the moment. Break of 1.5769 will confirm that fall from 1.6740 has resumed for 161.8% projection of 1.7043 to 1.6111 from 1.6740 at 1.5232 next. On the upside, above 1.6027 minor resistance will argue that consolidation from 1.5769 is indeed still in progress and another rise could be seen to above 1.6124 before fall resumption.

In the bigger picture, decisive break of 1.6111 support confirmed the case that GBP/USD has topped out in medium term by completing a head and shoulder top reversal pattern (ls: 1.6742, h: 1.7043, rs: 1.6740). Also, note that medium term rise from 1.3503 is treated as a correction in the long term decline from 2.1161 and should have completed too. Medium term outlook is turned bearish and the current fall from 1.7043 is tentatively treated as resumption of the long term down trend, which should target a new low below 1.3503 eventually. On the upside, break of 1.6740 resistance is needed to invalidate this bearish view.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
07:55EURGerman PMI Services Sep F 52.252.2 
08:00EUREurozone PMI Services Sep F 50.650.6 
08:30GBPPMI Services Sep 54.554.1 
08:30EUREurozone Sentix Investor Confidence Oct -11.8-14.6 
09:00EUREurozone Retail Sales M/M Aug -0.50%-0.20% 
09:00EUREurozone Retail Sales Y/Y Aug -2.40%-1.80% 
14:00USDISM Non-Manf. Composite Sep 5048.4