Dollar strengthen again in early US session as crude oil extends recent decline after brief recovery, dipping below 71 level. Stronger than expected durable goods orders provides little inspiration to markets as stocks open mildly lower which treasury yields also open softly. Sterling remains the weakest currency together with higher yielders. Euro is supported by stronger than expected Germany business confidence and extends rally in EUR/GBP, but falls sharply against dollar.

The development in dollar index is similar to that in USD/CAD, probably because both are heavily influenced by oil prices. Break of 78.67 resistance suggests that fall from 79.51 has completed at 77.67 already. The shallower than expected fall shifts favor to the case that price actions from 79.39 are indeed a set of three wave consolidation to rise from 77.43 only. In other words, rally from 77.43 is still in progress and the case that dollar index has bottomed out at 77.43 is revived. In such case, a retest of 79.51 resistance should be seen next.

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US headline durable goods orders rose 4.9% in July, the biggest jump since July 2007, and much better than expectation of 3.3%. Ex-transport orders rose for the third consecutive months by 0.8%, but the data was below expectation of 1.0%. The Germany Ifo business confidence improved to for the fifth consecutive months to a 11 month high of 90.5 in August. Improvements were seen in both the current situation and business expectations components as both improved to 86.1 and 95.0 respectively. The data suggests that business are becoming more confident in both expectations and outlook, which is inline with the GDP data that showed expansion by 0.3% in Q2. German import price dropped slightly more than expected by -0.9% mom, -12.6% yoy. Japanese trade surplus shrank more than expected to 0.19T yen in July while Corporate services price index dropped more than expected by -3.4% yoy.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.6304; (P) 1.6373; (R1) 1.6417; More

GBP/USD's decline from 1.7043 resumes as expected and drops to as low as 1.6159 so far. Intraday bias remains on the downside as long as 1.6265 minor resistance holds. Fall from 1.7043 is expected to continue towards 1.5983 key support next. ON the upside, above 1.6265 will turn intraday outlook neutral and bring consolidation. But recovery is expected to be limited below 1.6622 resistance and bring fall resumption.

In the bigger picture, we're still preferring the case that medium term correction from 1.3503 has completed at 1.7043 already, on bearish divergence condition in daily MACD and RSI. Break of 1.5983 will confirm this case and will possibly bring resumption of medium term down trend from 2.1161 to 1.3503 low and beyond. On the upside, in case of another rise above 1.7043, we'd continue to look for reversal signal as we expect the correction from 1.3503 to conclude inside resistance zone of 1.6428/7332 (38.2% and 50% retracement of 2.1161 to 1.3503).

GBP/USD