Sterling strengthens today after the release of BoE meeting minutes. The minutes revealed that the decision to keep rates unchanged, and more importantly keep the 175b pounds asset purchase program unchanged, was made by unanimous vote. Mervyn King and David Miles joined the unanimous vote after seeking 200b pounds in August and the switch argues that consensus is seen among the committee. The minutes said that in absence of significant news about the medium term, the case for adjusting the program now was outweighed by the benefits of following through with the program. The pound is also lifted by news that Confederation of British Industry raised the forecast for Q3 +0.3% in 3Q09 and +0.4% in 4Q09, and anticipated that BOE will stop buying assets after the current scheme is finished.
Next focus will be on FOMC and decision. Fed is widely expected to keep rates unchanged at 0-0.25% range and will likely reiterate the stance to keep rates at record low for an extended period of time. Nevertheless, FOMC might further change to a more upbeat tone on the economy based on recent improvements in data. Also, the Fed will probably taper off its purchase of agency MBS and agency debt by slowing down the pace rather than reducing the size of the program.
So far the greenback is holding above key support levels against major currencies as well as in dollar index on speculations that Fed might give some hints on the timing of stimulus removal. However, dollar could be sharply sold off in case of disappointment from the FOMC statement today. So far, the dollar index is still holding on to mentioned 75.89 key support level. Strong rebound from the current level and a break of 77.09 resistance will affirm our view that fall from March high of 89.62 is completing. However, decisive break of 75.89 will dampen our bullish view and in turn open up the case for sharper fall towards 70.70 low made in 2008.
On the data front Eurozone PMIs were mixed with PMI manufacturing missing expectation and rose to 49. in Sep. Services PMI rose slightly more than expected to 50.6. Eurozone industrial orders rose 2.6% mom in July, above consensus of 2.1%. Overnight, NZD was boosted by stronger than expected GDP report. Q2 GDP unexpectedly rose 0.1% qoq and showed shallower than expected drop of -2.1% yoy. The report raised the possibility that RBNZ might start to hike rates earlier than expected.
GBP/JPY Mid-Day Outlook
Daily Pivots: (S1) 148.50; (P) 148.95; (R1) 149.44; More
GBP/JPY rebounds further today and is now pressing 4 hours 55 EMA. Intraday bias remains neutral for the moment and some more consolidation could be seen above 148.03. Nevertheless, another fall is still in favor as long as 151.16 resistance holds. Below 148.03 will bring fall resumption to 146.75 cluster support next (38.2% retracement of 118.81 to 163.05 at 146.15) first. On the upside, however, break of 151.16 will argue stronger rebound is underway to 153.22 resistance and above. Nevertheless, upside is still expected to be limited below 157.47 resistance and bring fall resumption.
In the bigger picture, rise from 118.81, which is treated as correction the larger down trend from 07 high of 251.90, might have completed at 163.05 already, after failing to sustain above 55 weeks EMA. This view is supported by sustained trading below medium term rising trend line and with 55 weeks MACD staying below signal line. Decisive break of 146.75 support will confirm this bearish case by completing a double top reversal pattern (162.56, 163.05). In such case, deep decline should be seen that eventually send GBP/JPY through 118.81 low. On the upside, while another rise cannot be ruled out, upside is expected to be limited by 50% retracement of 215.87 to 118.81 at 167.34 to conclude such correction and bring reversal finally.