Sterling rebounds sharply higher today on speculation that BoE may pause the quantitative easing program. Dollar is somewhat benefited from Sterling's strength in crosses and recovers against major currencies too. However, the strength in greenback fades after release of better than expected economic data from US which saw core inflation rose up while manufacturing data rose sharply.
BoE Markets Director Paul Fisher said that he's more confidence now that the GBP 175b asset purchase program was having the scale and speed of impact that we would have hoped for when we started in March. He hinted MPC might opt to pause the program to give themselves the option of doing more later rather than stopping the program. This is echoing the comments from Deputy Governor Charles Bean that BoE will will need gradually to remove the large monetary stimulus that we have imparted to the economy, otherwise we will be in danger of overshooting our 2 percent inflation target.
Data from US saw CPI dropped less than expected by -1.3% yoy in September. Core CPI on the other hand, rose more than expected by 1.5% yoy. Empire State Manufacturing index rose strongly to 34.57 in October. Initial jobless claims also improved to 514k. Eurozone CPI dropped -0.3% yoy in September. Swiss ZEW Expectations improved to 65 in October. Japan industrial production rose 1.6% mom dropped -19% in August. New Zealand
New Zealand Q3 CPI rose 1.3% qoq, 1.7% yoy, much stronger than expectation of 0.8% qoq, 1.1% yoy. The report raised speculations that RBNZ would bring forward rate hikes to Q1 next year. Also, RBNZ already said earlier this week that it was removing some of the temporary emergency liquidity measures, including the Term Auction Facility and the regular weekly bill tender. New Zealand dollar soars in Asian session today after the release but pares gain as dollar rebounds.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5911; (P) 1.5967; (R1) 1.6034; More
GBP/USD's rebound from 1.5706 accelerates further to as high as 1.6297 so far and at this point, intraday bias remains on the upside. A short term bottom in place at 1.5706, with bullish convergence conditions in 4 hours MACD and RSI. Rise from 1.5706 is extending towards falling trend line resistance (now at 1.6474). On the downside, below 1.6132 minor support will turn intraday outlook neutral first. Break of 1.5919 support will indicate that the rebound has completed and will flip intraday bias back to the downside for 1.5706 low.
In the bigger picture, bearish outlook remains unchanged. Prior break of 1.6111 support confirmed the case that GBP/USD has topped out in medium term by completing a head and shoulder top reversal pattern (ls: 1.6742, h: 1.7043, rs: 1.6740). Also, note that medium term rise from 1.3503 is treated as a correction in the long term decline from 2.1161 and should have completed too. Medium term outlook is turned bearish and the current fall from 1.7043 is tentatively treated as resumption of the long term down trend, which should target a new low below 1.3503 eventually. On the upside, however, break of 1.6740 resistance will indicate that fall from 1.7043 has completed already. The three wave structure will in turn suggests that it's merely a correction to the medium term rise from 1.3503 only, which is not completed yet.