Quick update: Stocks turned red after poorer than expected Philly Fed index which dropped to 15.2 in January. DOW dropped more than -1% and triggers sharp rally in Japanese yen.
Sterling dropped sharply in European session today after data showed that M4 broad money supply had its sharpest monthly fall on record. M4 fell by -1.1% in December and rose 6.4% yoy, much worse than expectation of 0.9%mom and 8.9% yoy rise. The undesirably low money growth showed the lack of response in the market in spite of BoE's GBP 200b quantitative easing program. In addition, data also showed a net GBP 15.7b of public sector net borrowing in December, which is the higher on record in that month since 1993.
Data from US saw jobless claims rose to 482k. Eurozone PMIs were mixed and provided little support to Euro. Manufacturing PMI improved to 52 in January but services PMI dropped to 52.3. ECB monthly bulletin said that economic recovery in Eurozone economic recovery is likely to be moderate and uneven. Regarding fiscal imbalances, ECB said the very large government borrowing requirements carry the risk of triggering rapid changes in market sentiment, leading to less favorable medium and long-term market interest rates. Regarding inflation, ECB warned that the expected increase in headline HICP inflation in 2010, from an estimated annual rate of 0.9% in December 2009, should not be interpreted as a resurgence of underlying inflationary pressures.
Earlier today, Yen weakens mildly after solid data from China. China's GDP posted an impressive 10.7% qoy rise in Q4, faster pace since 2007. CPI rose much faster than expected by 1.9% yoy in December, the second straight gain after none months of decline. PPI rose 1.7% yoy after dropping for 12 months. Economists believe that the inflation trend is a deep concern of the Chinese government, as well the risk of asset bubbles. The strong growth and inflation data intensifies speculation that more tightening is around the corner.
Looking at the dollar index again, intraday bias remains on the upside as long as 78.22 minor support holds and current rise is expected to continue to 61.8% projection of 74.19 to 78.45 from 76.60 at 79.23 and then 38.2% retracement of 89.62 to 74.19 at 80.08. On the downside, below 78.22 will turn intraday bias neutral and bring consolidations. But pullback should be contained above 77.41 resistance turned support and bring rally resumption.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.6232; (P) 1.6301; (R1) 1.6359; More
GBP/USD's decisive break of 1.6209 support affirms that case that corrective rise from 1.5829 has completed with three waves up to 1.6456 already. Intraday bias is flipped back to the downside and further decline should be seen to retest 1.5829 support first. Break there will confirm that whole fall from 1.6875 is resuming for 1.5706 key cluster support. on the upside, above 1.6311 minor resistance will turn intraday bias neutral and mixes up the short term outlook.
In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is treated as a correction to down trend from 2.1161, has completed at 1.7043. Firm break of 1.5706 cluster support (38.2% retracement of 1.3503 to 1.7043 at 1.5691) will confirm this case and indicate that whole down trend from 2.1161 is likely resuming for a new low below 1.3503.
However, note that sustain break of 61.8% retracement of 1.6875 to 1.5829 at 1.6475 will in turn indicate that whole fall from 1.6875 has completed and recent price actions from 1.7043 are merely consolidations to the larger rise from 1.3503 only. That is, whole medium term rise from 1.3503 might not be finished yet and another rise could still be seen to 1.7332/8236 (50% and 61.8% retracement of 2.1161 to 1.3503) before completion.