The greenback surges across the board in European session, riding on optimism that US President-elect Obama's fiscal stimulus package will help US recover quickly from recession. Dollar index rises sharply to as high as 82.73 while USDJPY climbs to 93.38 so far. EUR/USD dives to as high as 1.3656. GBP/USD and AUD/USD are steadily in range. Obama is asking for tax cuts that make up 40% of the stimulus package which worths as much as $775b. In other words, the tax cuts may constitute more than $300b. Consumer demand is expected to be boosted by tax breaks that worth $500 for individuals and $1000 for couples. Businesses will get refunds for taxes paid in the past five years by deducting losses they've incurred now.

Technically speaking, intraday bias in dollar index will remain on the upside as long as 81.16 minor support holds and further rally is expected to test 83.11 cluster resistance. As discussed before, we favor the case that the sharp fall from 88.46 is merely a correction in the larger up trend and should have completed at 77.69 after meeting 61.8% retracement of 71.31 to 88.46 at 77.86. Sustained break of 83.11 cluster resistance (50% retracement of 88.46 to 77.69 at 83.07) will confirm this case and bring rally to retest 88.46 high. A break below 79.63 support is needed to invalidate this view or otherwise, short term outlook in dollar will remain bullish, even though strength will mainly be manifested against Euro and Yen in near term.

Sterling is also gathering strength in the European session. GBP/JPY's break of 134.46 confirms that a short term bottom is formed. More importantly, we're tentatively treating 129.71 as an important medium term bottom and strong rally could be seen after taking out 139.19 resistance. On the other hand, we've pointed out that a short term top is in place in EUR/GBP at 0.9799, with bearish divergence condition in 4 hours MACD and RSI. Correction from there resumes today. At this point, intraday bias will remain on the downside as long as 0.9632 minor resistance holds and further fall should be seen to 50% retracement of 0.8234 to 0.9798 at 0.9016, which is close to 0.9 psychological level. Though, downside is expected to be contained there and bring up trend resumption.

On the data front, although Switzerland's SVME PMI in December unexpectedly rose to 36.9 from historical low of 35.2 in November, it signaled the 4th month of contraction and indicated the country's industrial activities deteriorated rapidly particularly in the last 2 months of 2008. The improvement in December was brought by the output component while all others recorded decline last month.

Eurozone Sentix Investor confidence in January recovered to -34.4( consensus: -44)from a record low of -42.3 in December, after ECB's interest rate cut as well as the government's stimulus plans. In the UK, construction PMI in December plummeted to 29.3 (consensus: 30.5, November: 31.8), the lowest level since the survey started in 1997.

In the US, November construction spending is expected to have deteriorated further to 1.3% from -1.2% in October. While the residential component should have dropped sharply as suggested by poor housing starts and housing permits reported earlier.

Economic Indicators Update