Euro remains soft against major currencies ahead of the highly anticipated ECB meeting. Markets are expecting another 50bps cut in the benchmark interest rate from 2.50% to 2.00% today but opinions are divided. Though, recently economic data argue overwhelmingly for a rate cut, if not a deep one. In addition, inflationary pressures have already be easing rapidly with HICP dropping to 1.6% yoy which should now be below ECB's definition of price stability - below 2%, close to 2%. Such development should give no argument for ECB to hold back considering the risk of deepening recessions in the Eurozone. Also, focus will be on Trichet's press conference on hints on the path of policy easing ahead. Nonetheless, Euro will continue to be pressured against major currencies including dollar, yen, sterling and swissy in short term. Though, the common currency might remain firm against commodity currencies, which are most hit by the current risk aversion theme in the markets.
On the data front, released earlier, Japan's domestic CGPI plunged -1.2% in December, slightly better than market expectation of -1.5% and -1.9% in November. Moreover, the nation's private sector machinery orders dropped -16.2% in November, worse than consensus of -8% and -4.4% in October, as corporate reduced investment due to economic crisis. In Australia, employment dropped -1.2K in December, less than -20K as expected and a revised -16.2K in November. However, full time positions declined severely by -43.9K, the biggest drop in 5 years, and unemployment rate increased to from 4.4% to 4.5%. Germanys' HICP is finalized in Dec at 0.4% mom, 1.1% yoy.
Looking ahead, Eurozone's HICP in Dec is expected to finalize at -1.1% mom, 1.6% yoy in Dec. US initial jobless claim for the week ended Jan 10 is anticipated to have increased to 500 K after experiencing seasonal factors in the previous 2 weeks with 4-week moving average at 512 K. Layoffs from retail, finance and auto industries should be pronounced. December's PPI probably fell -2% over the month in December after November's 2.2% drop and record decline in October (-2.8%). This would the 4th consecutive month of declines as slowdown in demand for capital and consumer goods greatly eased inflationary pressure on intermediate and crude products. Although the Empire State manufacturing index is expected to have picked up slightly to -25 in January from -25.8 in December, the gauge still indicated significant contraction in manufacturing activities. The Philly Fed manufacturing index should show similar trends. January's reading should have come in at -35, slight higher than -36.1 in December.
Technically, dollar index's rally is still in progress. As mentioned before, fall from 88.46 to 77.69 is treated as a three wave correction in the larger up trend only. Current rise from 77.69 is expected to extend to retest this 88.46 high. On the downside, below 83.44 will bring some consolidations but short term outlook will remain bullish as long as 81.18 support holds.
EUR/CHF's decline is still in progress for retesting 1.4315 key long term support. Above 1.4841 minor resistance will bring consolidation, but recovery should be limited below 1.5143 resistance and bring fall resumption.
EUR/GBP's recovery from 0.8838 might have completed after failing 4 hours 55 EMA and 0.9174 resistance. INtraday bias is flipped back to the downside for 0.8838 low first. Below 0.8838 will indicate that fall from 0.9799 has resumed. Decisive break of rising trend line support will confirm that rise from 0.7808 has completed and will bring deeper decline to 0.8234 support next.