Macro economic data drives much volatility in the markets today. Sterling is sharply lower after poor GDP data. Canadian dollar and, to a lesser extent, Australian dollar are lower after slower than expected consumer inflation data. On the other hand, dollar is trying to stage a rebound with help on selloff in crude oil and gold. Note that the dollar index is trying to draw support from key near term support zone of 77.8/78.0 and we might see stronger recovery if the FOMC announcement tomorrow provides something dollar-supportive.

Sterling is knocked down by terribly poor Q4 GDP report today which raised fear that UK economy is re-entering into recession, or even worse stagflation. Q4 GDP unexpectedly dropped -0.5% qoq and dragged yoy rate down to 1.7%. The figures were much worse than expectation of 0.5% qoq, 2.6% yoy. The coldest weather in a century hampered services and retails while construction sector also slumped. More worryingly, the contraction in GDP came after Prime Minster David Cameron steps up the austerity plan. Meanwhile considering that CPI just reached an uncomfortably high level of 3.7% yoy in December, today's data is raising the fear of UK reentering into seventies style of stagflation.

Canadian dollar is sharply lower in early US session on disappointing CPI reading as well as sharp fall in commodities. Crude oil dives through 87 level which serves as an early alert of reversal. Meanwhile, gold also drops to as low as 1321.9 so far and is likely accelerating towards 1300 psychological level. Canadian CPI was unexpectedly flat mom in December and was up 3.4% over the year, below expectation of 0.2% mom, 2.5% yoy. BoC core CPI reading dropped more than expected by -0.3% mom and rose 1.5% yoy. The sharp rally in USD/CAD today suggests that rebound from 0.9836 is possibly not over yet and we'd cautiously anticipate a break of 1.0029 near term resistance forward.

Australia CPI unexpectedly slowed from 2.8% yoy to 2.7% yoy in Q4 after marking a 0.4% qoq rise. This was much weaker than consensus of 0.8% qoq, 3.0% yoy rise in CPI. RBA trimmed mean CPI moderated from 2.5% yoy to 2.2% yoy while the weighted mean CPI was unchanged at 2.3% yoy. The reading ensures that RBA would remain on hold next week. Meanwhile, it already buys time for RBA to assess the economic impact of the Queensland flood before making another move and markets are expecting that RBA won't hike again until the June quarter at least.

BoJ left rates unchanged at 0-0.1% as widely expected. The bank raised 2010 fiscal year GDP forecast from 2.1% to 3.3%, which is inline with the government's 3.1% projection. CPI are projected to drop 0.3% in 2010 fiscal year, comparing to -0.4% in the projection released three months ago. 2011 projection for CPI was also raised from -0.1% to 0.3%. After all, there is no change in markets' view that BoJ won't be raising rates before end of 2012.

The IMF revised up its forecast for global economic growth in 2011 as driven by strong US expansion after extension of tax cuts. The world lender estimates the world economy will grow +4.4% this year, up from +4.2% projected in October. Growth forecast for 2012 is, however, left unchanged at +4.5%. Concerning inflation, the IMF warned that inflation pressures are emerging in emerging economies. Indeed, with rises in commodity prices, advanced economies are also beginning to feel price pressures.

Dollar index recovers after trying to draw support from 77.97 cluster support zone (61.8% retracement of 75.63 to 81.44 at 77.85). With 4 hours MACD crossed above signal line, intraday bias is turned neutral. Note that with with 77.87/97 support zone intact, there is no confirmation that fall rebound from 75.63 is finished. Also, considering mildly bullish convergence condition in 4 hours MACD, dollar index might be forming a short term bottom. Break of 79.17 will flip bias back to the upside for a retest on 84.94 resistance. Nevertheless, decisive break of 77.85/97 will pave the way for another low below 75.63.


GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5904; (P) 1.5960; (R1) 1.6053; More.

GBP/USD's fall from 1.6057 resumes today by breaking 1.5838 support and reaches as low as 1.5750 so far. Intraday bias will remain on the downside as long as 1.5838 minor resistance holds and deeper decline would now be seen towards 1.5664 support. Note that the steepness of today's fall dampens the original mildly bullish view. Break of 1.5664 will in turn indicate that rebound from 1.5343 is completed and will bring deeper fall to retest this support. Also, note that decisive break of 1.5296/5343 support zone will complete a head and shoulder top reversal pattern (ls: 1.5997, h: 1.6298; rs: 1.6057) and will have bearish implications. On the upside, break of 1.6057 is needed to confirm rally resumption. Otherwise, outlook will be neutral at best for the moment.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5296 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, break of 1.4230 support will be the first signal of down trend resumption and will turn focus to 1.3503 low for confirmation.



Economic Indicators Update

23:00AUDConference Board Leading Index M/M Nov0.30%--0.60% 
00:30AUDCPI Q/Q Q40.40%0.80%0.70% 
00:30AUDCPI Y/Y Q42.70%3.00%2.80% 
00:30AUDCPI RBA Trimmed Mean Q/Q Q40.30%0.70%0.60% 
00:30AUDCPI RBA Trimmed Mean Y/Y Q42.20%2.60%2.50% 
00:30AUDCPI RBA Weighted Median Q/Q Q40.50%0.70%0.50% 
00:30AUDCPI RBA Weighted Median Y/Y Q42.30%2.50%2.30% 
05:00JPYBoJ Rate Decision0.10%0.10%0.10% 
07:00CHFUBS Consumption Indicator Dec1.84--1.631.62
07:00EURGerman GfK Consumer Sentiment Feb5.
09:30GBPGDP Q/Q Q4 A-0.50%0.50%0.70% 
09:30GBPGDP Y/Y Q4 A1.70%2.60%2.70% 
09:30GBPIndex of Services 3M/3M Nov0.80%0.50%0.60% 
09:30GBPPublic Sector Net Borrowing (GBP) Dec15.3B20.0B22.8B19.7B
12:00CADCPI M/M Dec0%0.20%0.10% 
12:00CADCPI Y/Y Dec2.40%2.50%2.00% 
12:00CADBoC CPI Core M/M Dec-0.30%-0.20%0.00% 
12:00CADBoC CPI Core Y/Y Dec1.50%1.60%1.40% 
14:00USDS&P/Case-Shiller Composite-20 Y/Y Nov -1.80%-0.80% 
15:00USDHouse Price Index M/M Nov 0.00%0.70% 
15:00USDConsumer Confidence Jan 54.352.5