Sterling is broadly lower as the weeks starts on political uncertainty in UK. The Labour Party suffered its worst post-war election and got only 15.3% of vote and was beaten into third place following Conservatives and Independents which got 27% and 17% votes respectively. Brown will meet the critics face to face in the Parliamentary meeting today in the wake of the election results and will face tremendous pressure to step down even after reshuffling the cabinet last week. In addition, BoE Blanchflower said that the bank may expand the current asset buying program and said that 150b pounds is just a notional starting number, higher than the current program of 125b pounds.

On the other hand, dollar extends recent rally in general, supported by news that BRICs countries, (Brazil, Russia, India and China) increased reserves by more than $60b in May to limit currency gains. The number represents the largest dollar buying in a year in Brazil, largest gains since Jan 2008 in India and larges since July in Russia. While there have been talk about discussion of de-dollarization in the BRIC summit on Jun e 16 in Russia, markets see last months dollar buying as a sign that BRICs countries are still dependant on the greenback as reserve currency.

Technically, intraday bias in dollar index remains on the upside with 80.26 minor support intact. The whole decline from 89.62 is tentatively treated as completed at 78.33, above mentioned support zone of 77.69/92. Focus now turns to next key resistance at 82.63 (38.2% retracement of 89.62 to 78.33 at 82.64) and break there will firstly confirm this case. More importantly, the three wave structure in turn indicates that such fall is merely a correction, or part of consolidation pattern in the larger up trend. In such case, we'd expect a test of 86.84/89/62 resistance zone. Below 80.26 will turn intraday outlook neutral and bring consolidation. But pull back should be contained above 79.03 support and bring rally resumption.

On the data front, Japanese current account surplus widened to 0.97T yen in Apr. Eco watchers survey also improved to 36.7 in May. Swiss unemployment rate jumped to 3 year high of 3.5% in May. Eurozone Sentix Investor Confidence is expected to improve from -34.3 to -31 in Jun. Germany factory orders are expected to be flat mom in Apr with yoy rate dropped -33.0%. Canadian housing starts are expected to rise to 130.3k in May.

GBP/USD Daily Outlook

GBP/USD's fall from 1.6661 extends further to as low as 1.5830 so far today and still in progress. As mentioned before a short term top is tentatively treated as formed at 1.6661 and break of 1.5778 cluster support (38.2% retracement of 1.4395 to 1.6661 at 1.5795) will confirm this case. Further decline should then be seen to channel support (now at 1.5188) next. On the upside, above 1.5991 minor resistance will turn intraday outlook neutral and bring consolidation. But another fall is still expected as long as 1.6240 minor resistance holds.

In the bigger picture, recent development argues that rise from 1.3503, which is treated as correction to down trend from 2.1161, may have completed at 1.6661, inside mentioned 1.6428/7332 resistance zone (38.2% and 50% retracement of 2.1161 to 1.3503). Sustained break of the trend line support (now at 1.5188) will confirm this case and target a retest of 1.3503 low next. On the upside, though, a break above 1.6661 will indicate that such rebound fro 1.3503 is still in progress. Nevertheless, focus will remain on reversal signal as this correction is expected to conclude inside 1.6428/7332 resistance zone.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50JPYAdjusted Current Account Total (JPY) Apr0.97T0.96T0.90T
23:50JPYJapan Money Stock M2+CD Y/Y May2.70%2.60%2.60%2.70%
5:00JPYEco Watchers Survey: Current May36.73434.2
5:45CHFUnemployment Rate May3.50%3.60%3.40%
8:30EUREurozone Sentix Investor Confidence Jun-31-34.3
10:00EURGerman Factory Orders M/M Apr0.00%3.30%
10:00EURGerman Factory Orders Y/Y Apr-33.00%-26.70%
12:15CADHousing Starts May130.3K117.4K