Most currency pairs remained confined within near term established ranges except EUR/USD as the pair rebounded partly due to the recovery in European stock markets (STOXX 50, FTSE 100 and DAX are all in positive territory with 1.6%-2.4% rise, Dow futures also up over 150 points pre-opening). On the other hand, speculation that U.S. may announce more monetary easing measures later this week in order to support the soft U.S. economy. Federal Reserve Chairman Ben Bernanke will speak later this week at the central bank's annual retreat in Jackson Hole, Wyoming this Friday, investors are betting the chairman will signal his willingness to implement more economic stimulus measures, probably 3rd round of quantitative easing (QE3).

At the same event last year, he announced QE2 which put dollar under heavy selling pressure for months. Traders also expect Bernanke to highlight the need for giving continuous support to the economy but further asset buying may not be the case. Having said that, some traders are reluctant to sell the greenback too aggressively ahead of Friday as they expect it is going to be a game changing event. Recent steps taken by EU officials to stop regional sovereign debt crisis from spreading were considered inadequate, with disappointments after Franco-German summit, investors are now turning to ECB's Trichet to save European debt problem. Data from ECB showed it bought 22 billion euros of government bonds in the week of 8-12 Aug and the central bank kept purchasing bonds last week at an undisclosed amount. In addition to debt buying, the President of ECB also extended unlimited lending to financial institutions through year-end in order to ease financial market tensions. The single currency found supranational bids around 1.4345-50 and staged a strong rebound in European session, offers at 1.4430 were filled and buying interest from Middle East names are now noted at 1.4400 (with some option expires today at 1.4350 and 1.4450).

Intervention fears (by BOJ and SNB) kept USD/JPY and USD/CHF in very tight range, even with traders cited SNB continued to appear in forward market (1-month), not much impact was seen in FX spot rates. Meanwhile, selling of short-dated francs in the forward market by SNB to flood the market helped supporting EUR/CHF, the pair edged higher from 1.1270 to 1.1385.

The British pound failed to follow the single currency and traded in a relatively soft undertone. In a radio interview of BOE's Broadbent, the committee member signaled UK economic outlook has weakened considerably in the past 3-4 months. The former Goldman Sachs economists who succeeded hawk Andrew Sentence on the BOE rate setting committee also explained that there has been a permanent loss of output with a significant amount of spare capacity. Another MPC member Weale who surprised the market by switching camps will give speeches later this week in 2 occasions (Tue and Wed). Cable was locked within the range of 1.6460-1.6522 today with bids and offers reported at both ends. Traders are basically in a wait-and-see mode ahead of series of data out of UK this week including CBI trend total orders (Tue), CBI reported sales (Wed) and more importantly UK GDP on Friday.

Elsewhere, the Australian dollar rebounded on the back of risk appetite due to rebound in global equity markets (DJI currently up 123 points), a high of 1.0473 was hit so far, just faltered below Friday's high of 1.0482. With both Swiss franc and Japanese yen under the threats of possible central bank interventions, aussie became an obvious risk-off choice. Having said that AUD/USD may stay in familiar range of 1.0300-1.0500 ahead of tomorrow's speech of RBA Deputy Governor Battellino.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.6395; (P) 1.6506; (R1) 1.6569; More.

GBP/USD continues to stay in tight range below 1.6618 temporary top and intraday bias remains neutral. More consolidations would be seen with risk of deeper retreat. But downside is expected to be contained well above 1.6110 support and bring another rise. Above 1.6618 will target 1.6746 resistance and then 100% projection of 1.5780 to 1.6474 from 1.6110 at 1.6807 next.

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 1.4229 is treated as the third leg of such consolidation. The corrective structure of the fall from 1.6746 to 1.5780 suggests that such rebound is not completed yet. Further rise could be seen through 1.7043 resistance. But we'd expect strong resistance at 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal. Nevertheless, break of 1.5780 will revive the case that GBP/USD has already topped out at 1.6746. The next medium term move would either be the fourth leg of the consolidation from 1.3503, or resuming long term down trend from 2.1161.