Sterling continues to be the biggest loser today on concern of rising level of UK government debts, Sovereign debt downgrade as well as deep recession. GBP/USD dived to a seven year low of 1.3862 while GBP/JPY continues to made new record low at 125.21. Slower than expected drop in UK inflation did little to help the Pound. Meanwhile, Dollar and yen are generally higher on risk aversion. Though, Aussie is somewhat supported by rebound in Gold prices and is relatively steady. Canadian dollar, on the other hand, dips after BoC cuts rates by 50bps to 1.00% as markets expected.
Bank of Canada slashed the key interest rate to lowest level since it's founded in 1934 to 1.00%. Moreover, the bank signaled further policy easing as it said that it will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required.
UK inflation fell slower than expected in Dec. CPI plunged -0.4% mom, the lowest level since April while on yearly basis, the gauge rose 3.1%, compared with 4.1% in the previous month. The major factor for the ease in inflationary pressure was the VAT cut to 15% from 17.5% announced on Nov 24. December's RPI also dropped to 0.9% yoy from 3% in November, fueling speculation that the reading will turn negative next month.
ZEW economic sentiments in January surprisingly jumped to -30.8(consensus:-46, December: -46.1) and -31 (consensus:-44, December: -45 ) in the Eurozone and Germany respectively after the ECB cut interest rates by a total of 225 bps since October 2008. German's reading signaled a third consecutive month of improvement and although remained in negative territory, the big jump in January suggests that the reading has bottomed out with the trough at -63.9 in July the lowest level since the index began in December 1991.
Released overnight, New Zealand's Q4 CPI plunged -0.5% qoq (consensus:-0.4%, Q3: 1.5%), the most in a decade. On annual basis, inflation slowed sharply from 18 year high of 5.1% in Q3 to 3.4% in Q4. The lower-than- expected CPI will open the door for RBNZ ito have another massive rate cut on Jan 28.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2962; (P) 1.3173; (R1) 1.3280; More
EUR/USD's decline continues today and reaches as low as 1.2906 in early US session. At this point, intraday bias remains on the downside as long as 1.3049 minor resistance holds. As discussed before, consolidation from 1.2329 has possibly completed at 1.4719 already. Current fall from 1.4719 is expected to extend to retest 1.2329 low. On the upside, above 1.3049 will turn intraday outlook neutral and bring consolidation. But upside should be limited below 1.3385 resistance and bring another fall. Break of 1.3385 is needed to indicate completion of decline from 1.4719. Otherwise, short term outlook will remain bearish.
In the bigger picture, a medium term bottom no doubt in place at 1.2329 and fall from 1.6038 should have completed. Whether such fall is impulsive or corrective in nature is debatable. But after all, in either case, as long as 1.4867 resistance holds, such decline is still in favor to resume and should target 1.1639 medium term support next. Though, some larger scale consolidation could be seen first. However, above 1.4867 will dampen the bearish view and argue that stronger rally would be seen to retest 1.6038 record high.