Dollar lost ground to Euro and Sterling in spite of some hawkish comments from Fed Plosser. Euro was lifted by comments from Greek Finance Minister George Papaconstantinou a bailout of the country is not necessary. Sterling, on the other hand, is still receiving strong support from Sentance's comments and rate speculations. Commodities are steady in consolidation with crude oil hovering around 80 level while gold is trading around 1130.
Fed Plosser said that interest rates should be raised well before unemployment falls to an acceptable level. He expects the US economy to expand 3-3.5% in 2010, which is faster than the 2.75% he sees as the underlying potential pace. And as growth lifts market rates Fed's rate should also rise as long as inflation is near its desired level and inflation expectations are well-anchored. Otherwise, Plosser said that inflation will be created above desirable level in the business cycle.
Papa Constantinou said Greece's budget has no more skeletons in the cupboard and assured that the deficit will come under 3% of GDP by the end of 2012. He also reiterated that there is no need for a bailout and the country's 2009 budget deficit would not be further revised upwards. HE will also present the stabilization program to Brussels that contains both precise details of the 2010 budget and more specific details on the government?s medium-term consolidation plans.
BoE MPC committee member Andrew Sentance said in an interview with Guardian that at some point you have to say we have increased the amount of stimulus enough. It doesn't mean you are going to withdraw it but you don't have to keep adding to it. Also, he said that impact of oil and commodities prices, and sterling, on inflation need to be considered and the bank is approaching a point that need to hold back and wait and see how stimulus is flowing into the recovery. He also express his confidence that there is little risk of a double-dip recession in UK.
Technically, dollar index's decisive break of 38.2% retracement of 74.19 to 78.45 at 76.82 indicates that the correction from 78.45 is going to be deeper than we thought. Intraday bias will remain on the downside as long as 77.30 minor resistance holds and the index should now be targeting 61.8% retracement at 78.51. Nevertheless, we'd expect strong support from this fibonacci level to conclude the consolidation. A break above 77.30 minor resistance will now be the first signal that correction from 78.45 has completed and will turn focus back to 78.19 resistance for confirmation.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6087; (P) 1.6140; (R1) 1.6219; More
GBP/USD's rebound extends further to as high as 1.6293 so far today. At this point, intraday bias remains on the upside and the corrective rise from 1.5829 is still expected to continue to 100% projection of 1.5829 to 1.6327 from 1.5896 at 1.6304 and above. Nevertheless, we'd still expect upside to be limited below 61.8% retracement of 1.6875 to 1.5829 at 1.6475 and bring resumption of the whole fall from 1.6875. On the downside, below 1.6192 minor support will turn intraday bias neutral first. Further break of 1.6062 support will indicate that such correction has possibly completed and recent fall is resuming for 1.5829 and below.
In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is 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 sustain break of 61.8% retracement of 1.6875 to 1.5829 at 1.6475. will in turn indicate that whole fall from 1.6875 has completed and recent price actions from 1.7043 are merely consolidations to the larger rise from 1.3503 only. 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.