Sterling rises sharply after BoE kept interest rates and the quantitative easing program unchanged. Additional boost was found from better than expected house price data. BoE announced that interest rates were kept at record low of 0.50% while the asset purchase program was left unchanged at 175b pounds. Halifax house price index rose for second consecutive month, by 1.8% versus expectation of 1.0%. Year-over-year rate was -10.1%. Two other central banks announced rate decisions today. BoC left rates unchanged at 0.25% and reiterated it's conditional commitment to be on hold until end of Q2 2010. RBNZ left the OCR unchanged at 2.5% and maintained a dovish tone and easing bias in the accompanying statement.
Technically, EUR/GBP's failure below 0.8837 resistance and the subsequent sharp fall today indicates that consolidation is still in progress with another fall to 0.8704 and below. On the other hand, GBP/USD's break of 1.6622 resistance indicates that correction from 1.7043 might have completed. In short, the pound might have reversed it's fortune temporarily and more upside is in favor in near term. Elsewhere, the Japanese yen is gathering some strength in early US session, with help from sharp pull back in treasury yields. USD/JPY dips to as low as 91.45 so far while EUR/JPY also drops to 133.40. Dollar recovers mildly against as crude oil pares back earlier gain and drops back to 71 level but the strength is so far limited as Gold is trying to build a base above 980 level.
On the data front, US trade deficit widened sharply by 16% to -$32b in July, biggest jump in a decade. Imports rose to $159.6b as imports of petroleum products rose to $22.4b. On the other hand, exports rose to $127.6b on sales of capital goods. Jobless claims dropped slightly to 550k. Canadian trade surplus posted unexpected deficit of -1.4B in July. Data released over night saw Japanese CGPI dropped more than expected to -8.5% yoy in August. Machine orders also dropped more than expected by -9.3% mom in July. Australia unemployment rate was unchanged at 5.8% in August, better than expectation of a rise to 5.9%. However, the job market did contract more than expected by -27.1k.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6470; (P) 1.6531; (R1) 1.6606; More
GBP/USD's rally resumes today and reaches as high as 1.6662 so far. The break of 1.6622 resistance suggests that fall from 1.7043 has completed at 1.6111 already. At this point, intraday bias remains on the upside and further rise could be seen to 61.8% retracement of 1.7043 to 1.6111 at 1.6687 and above. On the downside, below 1.6481 minor support will turn intraday outlook neutral again. But another rise would be in favor as long as 1.6286 support holds.
In the bigger picture, we're still preferring the case that medium term correction from 1.3503 has completed at 1.7043 already, on bearish divergence condition in daily MACD and RSI. Break of 1.5983 will confirm this case and will possibly bring resumption of medium term down trend from 2.1161 to 1.3503 low and beyond. On the upside, in case of another rise above 1.7043, we'd continue to look for reversal signal as we expect the correction from 1.3503 to conclude inside resistance zone of 1.6428/7332 (38.2% and 50% retracement of 2.1161 to 1.3503).