US dollar weakens mildly but remains bounded in established range against most major currencies. Stocks open flat after yesterday huge rally. Oil retreats after US reports cut demand forecast while gold continues to hover around 900 level. Markets are lacking a clear direction for the moment. Markets are also digesting news that Obama administration is set to use capital injection an incentive to get US banks to sell toxic assets to investors. On the other hand, Sterling remains one of the weakest currencies as BoE is offering to buy up to GBP 2b of Gilts with auction today, starting the 75-150b quantitative easing Asset Purchase Program.
Released in US session, Canadian housing price index dropped much more than expected by -0.6% mom in Feb and was down 00.8% yoy. This marked the first year-over-year decline since 1997 while the monthly drop is the largest since 1991. The Canadian dollar remains steadily in range after the news though.
Released earlier, Trade deficit in the UK unexpectedly widened to -7.74B pound in January, more than market expectation of -7.45B pound and a revised -7.23B pound a month ago, as decline in exports (-4% mom)was much faster than decline in imports (-1%). During the month, shipments to the non-EU countries, plunged 16%. UK's trade balance should remain in deficit in coming months as global economy will likely contract further. Last week, the BOE slashed interest rate to 0.5% and announced asset purchase program of 75B pound initially (up to 150B pound) in order to stimulate economic growth. Germany factory orders dropped much more than expected by -9.0% mom, 037.9% yoy in Jan.
Japan machine orders slid 3.2% mom in January, compared with market expectation of -5% and -1.7% in the previous month. The 4th consecutive monthly decline was brought by severe contraction in exports and the major sectors contributing to the slumps were steel manufacturing, coal and oil production as well as textiles. On annual basis, the reading plummeted 39.5%, compared with consensus of -40.2% and -26.8% in December. Moreover, domestic CGPI in February dropped another 0.4% mom (consensus:-0.6%) following a downwardly revised -1.1% in January. On yearly basis, CGPI was down 1.1% after dropping -0.3% a month ago. Export prices gained 0.3% mom while import prices rose 2.2% mom during the month.
Upcoming, New Zealand's RBNZ will discuss about interest rate tomorrow and the majority of economists anticipated a minimum of 50 bps cut to 3%. As RBA kept its cash rate target unchanged at 3.25% last week, this will be the first time since December 2003 (New Zealand: 5%, Australia: 5.25%) that policy rate in New Zealand was lower than that in Australia. That said, economists do not believe the situation will stay long as New Zealand has more urgent need of money so that the RBNZ will soon need to raise interest rate again to attract foreign capitals.
Technically, there is no change in dollar index's outlook. While deeper decline might still be seen, it's now likely that the current consolidation from 89.62 will be contained by 86.81 cluster support (23.6% retracement of 77.69 to 89.62 at 86.80). Still, 83.58 cluster support (50% retracement of 77.69 to 89.62 at 86.65) remains the key level and as long as it holds, rise from 77.69 is still expected to resume after the current consolidation. Above 89.62 will suggest rally resumption and target 90 psychological level next.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.3657; (P) 1.3781; (R1) 1.3873; More
Intraday bias remains of GBP/USD remains on the downside as long as 1.3907 minor resistance holds. Current decline from 1.4719 is still expected to extend further to retest 1.3503 low. On the upside, above 1.3907 will turn intraday outlook neutral again and bring another recovery. But upside is still expected to be limited below 1.4304 resistance and bring fall resumption. However, note that break of 1.4304 will argue that whole fall from 1.4719 has finished and will turn short term outlook bullish.
In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Price actions from 1.3503 is treated as correction/consolidation in the larger down trend from 2.1161. It's uncertain whether such correction from 1.3503 is developing into sideway consolidation below 1.5722 or a stronger rebound. Nevertheless, as long as 1.3503 low holds, such consolidation is still in favor to extend further with another rise before completion. Decisive break of this support is needed to confirm down trend resumption.