Dollar remains firm in early US session as markets are shifting focus to budget woes of Eurozone. Yen also manages to rally against major currencies on weaker stocks and commodities. Euro weakens today on concern that Portugal, Spain and Eastern Europe governments will struggle to fund the budget deficits as their plans for deficit-reduction are far less ambitious than that of Greece. ECB left rates unchanged at 1.00% as widely expected.

BoE left rates unchanged at 0.50% and paused its GBP 200b asset purchase program as widely expected. The bank said in the accompanying statement that the current interest rate would continue to impart a substantial monetary stimulus to the economy for some time to come. Meanwhile, the committee will continue to monitor the appropriate scale of the asset purchase program and further purchases would be made should the outlook warrant them. Sterling pares some losses after the announcement.

Aussie and Kiwi are sharply lower overnight after worse than expected economic data. Retail sales in Australia unexpectedly dropped -0.7% mom in December versus consensus of 0.3%. Meanwhile, New Zealand unemployment rate surged sharply from 6.5% to 7.3% in Q4. Other data released today saw Swiss trade surplus narrowed to CHF 1.36b in December. German factory orders dropped -2.3% mom in December. Canada building permits rose 2.4% mom in December. US non-farm productivity dropped to 6.2% in Q4 while unit labor costs dropped -4.4%. Initial jobless claims remain elevated at 480k.

Dollar index's break of 79.53 resistance confirms that recent rally has resumed and should target medium term fibonacci level of 38.2% retracement of 89.62 to 74.19 at 80.08 next. While some retreat might be seen, we'd maintain the short term bullish view as long as 78.68 support holds.

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GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5819; (P) 1.5944; (R1) 1.6012; More

GBP/USD's break of 1.5829 support confirms that whole decline from 1.6875 has resumed. Intraday bias remains on the downside for the moment and further fall should be seen to 1.5706 key cluster support. on the upside, above 1.5918 minor resistance will turn intraday bias neutral and bring some recovery. But another fall is still expected as long as 1.6067 resistance holds.

In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is treated as a correction to down trend from 2.1161, has completed at 1.7043. Firm break of 1.5706 cluster support (38.2% retracement of 1.3503 to 1.7043 at 1.5691) will confirm this case and indicate that whole down trend from 2.1161 is likely resuming for a new low below 1.3503. However, note that break of 1.6456 resistance will in turn shift favor to the case that recent price actions from 1.7043 are merely developing into consolidations to the larger rise from 1.3503. That is, 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.

img class=hand onload=resizeImg(this,450) src=http://www.actionforex.com/images/stories/contributors/actionforex/gbpusd20100204b.gif border=0 alt=GBP/USD 4 Hours Chart />