Sterling remains weak across the board and received no support from solid data released overnight. BRC retail sales monitor showered the fastest rise in 5 months by 2.8% yoy, a drastic improvement from -0.1% in August. RICS House Price Balance improved more than expected to 22%, showing more than expected survey respondents report house price increase.

RICS said lack of supply is still underpinning rise in hour prices and the imbalance between demand and supply will send house price higher in near term. Nevertheless, the pound is still weighed down by speculations that BoE would keep rates low for an extended period and may even expand the stimulus measure.

British Chamber of Commerce said the quantitative easing program might expand by another GBP 25b to GBP 200b. Center for Economics and Business Research said earlier that UK interest rates will stay at a record low until at least 2011 and said the QE program might expand by another GBP 75b. Focus will turn to UK CPI to be released later today, which is expected to show further fall from 1.8% yoy to 1.7% yoy in September.

Sterling is also one of the main victim in the risk seeking even environment with much weakness in commodity crosses. Canadian dollar and Australian dollar remains firm as Asian equities rose broadly today following strength in DOW which made another 2009 high yesterday. Crude oil consolidates above 73 level after yesterday's strong rally.

Following up on GBP/AUD, recent down trend is still in progress and dips to 1.7386 so far today. We'd expect the current fall to extend to double projection target of 1.60/61 level (100% projection of 2.2877 to 1.9684 from 2.0979 at 1.6104 and 100% projection of 2.7092 to 2.0231 from 2.2877 at 1.6016) before bottoming. On the upside, break of 1.8467 resistance needs to be the first sign of stabilization. Otherwise, outlook will remain bearish.

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Elsewhere, while the dollar remains weak, in particular against commodity currencies, it's still staying in range against Euro and Swissy. DOW's failure to sustain at new 2009 high and Gold's consolidation below 1060 level is so far limiting the down side of dollar. As discussed before, crude oil's rally will possibly extend further to 75.0 level and beyond and thus will likely give the greenback further pressure. The sharp pull back in dollar index yesterday dampens the double bottom scenario and turns focus back to 75.78 in near term. Downside is back in favor as long as 76.68 minor resistance holds.

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On the data front, New Zealand retail sales rose more than expected by 1.1% mom in August. Australian NAB business confidence dropped form 18 to 14 in September. UK BRC retail sales rose 2.8% in September and RICS house price balance improved to 22%. UK CPI, German ZEW and Canadian new housing price index will be released today.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5722; (P) 1.5803; (R1) 1.5877; More

Intraday bias in GBP/USD remains on the downside for the moment and further fall is expected. As noted before, the break of 1.5769 support suggests that fall from 1.6740 is resuming. Further decline should be seen to 161.8% projection of 1.7043 to 1.6111 from 1.6740 at 1.5232 next. On the upside, above 1.5881 minor resistance will turn intraday outlook neutral first. But recovery should be limited below 1.6119 resistance and bring fall resumption.

In the bigger picture, bearish outlook remains unchanged. 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
21:45NZDRetail Sales M/M Aug1.10%0.60%-0.50% 
21:45NZDRetail Sales Ex-Auto M/M Aug1.20%0.50%-0.50%-0.60%
23:01GBPBRC September Retail Sales Monitor2.80%---0.10% 
23:01GBPRICS House Price Balance Sep22.00%15.10%10.70%10.00%
0:30AUDNAB Business Confidence Sep14--18 
7:15CHFCombined PPI M/M Sep 0.10%0.10% 
7:15CHFCombined PPI Y/Y Sep -4.90%-5.50% 
8:30GBPCPI M/M Sep 0.30%0.40% 
8:30GBPCPI Y/Y Sep 1.30%1.60% 
8:30GBPCore CPI Y/Y Sep 1.70%1.80% 
8:30GBPRPI M/M Sep 0.30%0.50% 
8:30GBPRPI Y/Y Sep -1.50%-1.30% 
8:30GBPDCLG UK House Prices Y/Y Aug -4.90%-8.30% 
9:00EURGerman ZEW Econ. Sentiment Oct 58.857.7 
9:00EUREurozone ZEW Econ. Sentiment Oct 61.259.6 
12:30CADNew Housing Price Index M/M Aug 0.20%0.30%