Sterling strengthens mildly against dollar but remains rather mixed elsewhere ahead of BoE Quarterly Inflation Report today. Recent economic data from UK, suggest that the worst in the economic downturn might be over. However, it's rather unlikely that the report will deliver a brighter tone just after BoE has extended its quantitative easing program last week. Markets opinion are quite divided on how BoE will revise growth and inflation projection data. And based on that, any revision could trigger strong volatility in the markets.
In the Eurozone, contraction in industrial production is expected to have moderated to -1% mom in March, compared with -2.3% in February and the average of -2.4% in the past 6 months. On annual basis, the reading probably plunged -17.7% after falling -18.4% a month ago.
US retail sales probably slid -0.1% mom in April after dropping -1.1% a month ago while the reading excluding auto sales would have stayed flat, compared with a -0.9% drop in the previous month. Import price index should have gained +0.4% mom in April following a +0.5% increase in March. Moreover, business inventories is anticipated to have contracted -1.2% in March after declining -1.3% a month ago.
Earlier in Japan, current account surplus widened to 902.3B yen in March, better than consensus of 513.5 B yen and 673.4B yen in the previous month. Also, M2 money supply and CD rose +2.6% yoy in April, also more than market expectation of +2.3% and +2.2% a month ago.
Technically speaking, dollar index continues to sustain below mentioned 82.19/62 cluster support zone. Further decline is still expected with 82.87 resistance intact. As recent rise in stocks and commodities carry on, the greenback will continue to remain pressured broad, with the index targeting 100% projection of 89.62 to 82.63 from 86.87 at 79.88. However, we ain't too bearish on the greenback in the longer term, based on the view that recent rallies in stocks and commodities are merely correction in the longer term down trend. Strong support is expected as the dollar index dips below 80 psychological level and should keeps it above 77.69 long term support.
EUR/GBP Daily Outlook
EUR/GBP draws some support from 4 hours 55 EMA and recovers mildly today. But after all, outlook remains rather mixed as it's unclear whether decline from 0.9494 has completed at 0.8763 already even though bullish convergence condition in 4 hours MACD is suggesting so. We'd prefer to see a break out of range of 0.8763/9080 before concluding. On the upside, break of 0.9080 resistance will indicate that whole decline from 0.9494 has completed at 0.8763 already. In such case, strong rally should be seen towards trend line resistance at 0.9282 next. On the downside, below 0.8763 will suggest that fall from 0.9494 is indeed still in progress to 0.8635 support and below before completion.
In the bigger picture, there is no change in the view that consolidation from 0.9799 is still in progress. Nevertheless, it's rather unclear how such consolidation is developing into. Below 0.8763 will favor that case that it's developing into three wave pattern, with fall from 0.9494 as the third wave. Below 0.8635 will confirm and target 100% projection of 0.9799 to 0.8635 from 0.9494 at 0.8330. On the upside, above 0.9080 will favor the case that it's developing into triangle pattern (0.8635, 0.9494, 0.8763, ......). Rise from 0.8763 could be the fourth leg of the triangle pattern and should target the trend line resistance. But upside should be limited below 0.9494 and bring the fifth leg decline.
Economic Indicators Update
|23:50||JPY||Japan Current Account (Yen) Mar||902.3B||513.5B||673.4B|
|23:50||JPY||Japan Money Stock M2+CD Y/Y Apr||2.60%||2.30%||2.20%|
|5:00||JPY||Japan Eco Watchers Survey: Current Apr||34.2||30||28.4|
|9:00||EUR||Eurozone Industrial Production M/M Mar||-1.00%||-2.30%|
|9:00||EUR||Eurozone Industrial Production Y/Y Mar||-17.70%||-18.40%|
|9:30||GBP||BoE Quarterly Inflation Report||--||--|
|12:30||USD||U.S. Retail Sales M/M Apr||-0.10%||-1.10%|
|12:30||USD||U.S. Retail Sales ex-Autos M/M Apr||0.00%||-0.90%|
|12:30||USD||U.S. Import Price Index M/M Apr||0.40%||0.50%|
|14:00||USD||U.S. Business Inventories Mar||-1.20%||-1.30%|
|14:30||USD||Crude Oil Inventories||1.1M||0.6M|