Risk is back on as focus moved from Egypt to economic data today. US ISM manufacturing index rose strongly to 60.8 in January versus expectation of 57.9. Prices paid component also jumped to 81.5. Economic indicators released from Europe are generally positive and is supportive to view of improving global recovery. Sterling extends recent rally against dollar above 1.6 level as boosted by strong Manufacturing PMI, which jumped to record high. Euro is also lifted mildly by upward revision in manufacturing PMI as well as downward revision in unemployment rate. In general, the greenback is soft on risk appetite trades.

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UK manufacturing PMI sharply from 58.7 to 62 in January, hitting the highest level since the survey began in 1992 and well above consensus of 57.9. It overshadowed other data where we saw mortgage approvals dropped to 42.6k in December, and hit lowest level since March 2009. M4 money supply dropped sharply by -1.3% mom. After all, the PMI data affirmed the view that UK recovery is gaining momentum and is supportive to speculation of rate hike from BoE later this year.

The National Institute for Economic and Social Research (NIESR) projected the UK economy to grow 1.5% and 1.8% in 2011 and 2012 respectively and estimates that it's operating above 4% below potential. NIESR urged the government to postpone at least some of the austerity program for promoting recovery and said the cost of delay would be acceptable because borrowing costs are currently low. Also NIESR said the case for further quantitative easing is evaporating. Instead, NIESR said that BoE might hike rates three times this year to bring inflation back to the target and the first move could come as soon as May.

Data from Eurozone saw PMI manufacturing revised up from 56.9 to 57.3 in January. Unemployment rate was unchanged at revised 10% in December. Germany unemployment dropped more than expected by -13k in January while unemployment rate dropped to 7.4%. Swiss SVME PMI rose to 60.5 in January, though, retail sales dropped -0.4% yoy in December.

width=272China's two manufacturing PMIs were mixed in January, with the PMI from the government slipping to 52.9 in January from 53.9 in the prior month while and the reading compiled by HSBC improving marginally to 54.5 from 54.4. That said, the level of new orders in both manufacturing PMIs remained strong, signaling growth will accelerate further in 1Q11. We expect the Chinese government will tighten its monetary policy further, through raising interest rates and increasing reserve requirement ratio, in order slow growth and inflation.

The RBA left the cash rate unchanged at 4.75% for a second consecutive meeting after raising it for 7 times since October 2009. Policymakers appeared more optimistic towards the global economic outlook. Tightening bias remains and the central bank will probably hike interest rates again in 2Q11. Currently, the market has priced in a 16% chance the RBA will hike rates in June, up from +12% before the meeting. More in RBA Leaves Cash Rate Unchanged, Expects Limited Impacts From Flooding.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3596; (P) 1.3667 (R1) 1.3765; More.

EUR/USD's break of 1.3757 resistance indicates that rise from 1.2873 and intraday bias is back on the upside for further rise. Not that whole decline from 1.4281 should have finished with three waves down to 1.2873 already. Current rally should extend through 1.4 psychological level to retest 1.4281 key resistance first. On the downside, however, break of 1.3570 support will indicate that a short term top is formed and bring deeper fall instead.

In the bigger picture, main question remains on whether medium term correction from 1.6039 has finished with three waves down to 1.1875. The firm break above 1.35 psychological level again affirm the case that fall from 1.4281 was merely a correction only and whole rise from 1.1875 is still in progress. Also, note that break of 1.4281 will revive the case that medium term correction from 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. On the downside, though, below 1.2873 will turn focus back to 1.1875 low. Follow

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
00:30AUDNAB Business Confidence Dec-3--6 
00:30AUDHouse Price Index Q/Q Q40.70%-0.20%0.10%-0.30%
01:00CNYPMI Manufacturing Jan52.953.553.9 
03:30AUDRBA Rate Decision4.75%4.75%4.75% 
08:15CHFRetail Sales (Real) Y/Y Dec-0.40%--2.50%1.80%
08:30CHFSVME PMI Jan60.559.259.6 
08:55EURGerman Unemployment Change Jan-13K-10K3K 
08:55EURGerman Unemployment Rate Jan7.40%7.50%7.50% 
08:55EURGerman PMI Manufacturing Jan60.560.260.261.2
09:00EUREurozone PMI Manufacturing Jan57.356.956.9 
09:30GBPMortgage Approvals Dec42.6K47.0K48.0K47.3K
09:30GBPM4 Money Supply M/M Dec-1.30%0.30%-0.80%-0.60%
09:30GBPM4 Money Supply Y/Y Dec-1.50%---1.40%-1.20%
09:30GBPPMI Manufacturing Jan6257.958.358.7
10:00EUREurozone Unemployment Rate Dec10.00%10.10%10.10%10.00%
15:00USDISM Manufacturing Index Jan60.857.95758.50
15:00USDISM Prices Paid Jan81.573.572.5 
15:00USDConstruction Spending M/M Dec-2.50%0.10%0.40%