Dollar and yen retreats mildly as markets stabilize from yesterday's volatility. DOW recovers from yesterday's selloff, while European stocks indices are mostly flat. Sterling is so far the biggest loser today after dovish comments from BoE Governor King and Quarterly Inflation Report but downside is limited so far. Canadian dollar is another noticeably weaker one after the country posted first trade deficit in 33 years while crude oil remains pressured below 40 level. US trade deficit narrowed to -39.9b in Dec, still wider than expectation of -36b but it's already the smallest since 2003. Canadian trade balance posted -4.6b deficit, first since 1976.

In the quarterly inflation report, BOE forecast CPI will ease to 0.5% at the end of 2010 while economy will contract at an annual 4% by the end of 1Q09. Governor Mervyn King said that the central bank will continue cutting interest rate and will likely increase money supply so as to stimulate nominal spending because UK is in 'deep recession'. UK ILO unemployment rate rose to 6.3% in December, the highest level in 10 years, from 6.1% in December. The Claimant count added 73.8K to 1.23 million people in January, the greatest number since July 1999 as well as the 12th consecutive month of increase, compared with market expectation of 90K and revised 79.9K in December. In terms of wages, the average earning rose 3.2% yoy in 3 months through December, unchanged from the period through November.

Also released today, Australian Westpac consumer confidence plummeted -4.6% in February after sliding -2.2% a month ago. Germany HICP is finalized to be -0.6% mom, 0.9% yoy in Jan.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.1451; (P) 1.1616; (R1) 1.1726; More

No change in USD/CHF's outlook yet. With 1.1501 support intact, there is still not confirmation of a top and outlook remains neutral for the moment. Another rise is still mildly in favor and above 1.1778 will indicate that recent rise from 1.0366 is still in progress towards 1.2248/96 resistance zone. However, note there are some signs of topping and break of 1.15012 will indicates that a short term top is in place, with bearish divergence condition in 4 hours MACD, and in form of a diagonal triangle that started at 1.1313. Nevertheless, the apparent five wave structure of the rise from 1.0366 argues that the subsequent price actions will be corrective in nature and should be contained by 1.0864/1277 support zone and bring rally resumption.

In the bigger picture, current favored interpretation is that medium term rise from 0.9634 has topped at 1.2248 orthodox top rather than 1.2296. In other words, three wave structure of the fall from 1.2258 to 1.0366 argues that it's merely a correction in the medium term up trend. Rise from 1.0366 should now extend to retest 1.2248/2296. The possible five wave structure of rise from 1.0366 is favoring the case that it's resuming medium term up trend. Though, decisive break of the resistance zone is needed for confirmation. Otherwise, some large scale consolidation could be seen, with risk of another test of 1.0366 before up trend resumption.