Sterling and Euro remain in range as markets await important economic data from Europe today. In the UK, the preliminary 4Q08 GDP is anticipated to have contracted -1.2% qoq following a decline of -0.6% in 3Q08. Two consecutive quarters of contraction will confirm technical recession in UK. On annual basis, the UK economy is expected to shrink -1.4%, the largest drop since 1991. Retail sales is expected to dropped -0.6 mom in Dec. GBP/USD is bounded in tight range after hitting a 23 year low of 1.3621 earlier this week, drawing support from 2001 low of 1.3680. Markets seem to be waiting for today's data for either a strong breakout or rebound.
The Eurozone's PMI manufacturing and service are expected to have dropped further to 33.2 and 41.5, from 33.9 and 42.1, respectively. In Germany, the readings should also have weakened to 31.8 and 45 for manufacturing component and service component. Note that EUR/GBP is still struggling around an important near term fibonacci resistance at 0.9493. The chance of making another recover high above 0.9799 will depend of whether EUR/GBP will take out this resistance decisively, or bounce off from the current level.
To be released later today, Canada's inflation continues to ease in December with the CPI anticipated to come in at -0.4% mom from -0.3% in the previous month. On yearly basis, the gauge should have slowed from 2.0% to 1.4%. Concerning core CPI, the reading is expected to have dropped -0.2% mom and rose 2.4% yoy. In the January Monetary Report released yesterday, BOC forecasts total CPI will dip below 0% for 2 quarters in 2009 due to decline in energy prices. However, both total and core inflation will return to target level of 2% yoy by 1H2010.
Released in Asian morning, Japan's all industry index plunged 2.3% mom in November, compared with market expectation of -2.2% and a revised -0.4% in October. Industrial production component remained poor with a reduction of 8.2% while construction and tertiary components dropped 0.8% and 0.9% from the previous month, respectively.