Sterling rises sharply today as BoE minutes showed that policy Sentence voted for a 25bps hike in last meeting. The minutes revealed that the Committee voted 7-1 to keep the bank rate unchanged at 0.5%. This was the first time in almost 2 years that a rate hike was proposed. The members however voted unanimously for maintaining the asset purchase program unchanged at 200B pound. Sentance believed that rate hike, by +25 bps, to 0.75% was warranted as 'developments over the past month were consistent with a pattern which had been developing over the past year. Inflation had proved resilient in the aftermath of the recession, casting doubt on the future dampening impact of spare capacity on inflation'. Despite current uncertainties, 'it was appropriate to begin to withdraw gradually some of the exceptional monetary stimulus provided by the easing in policy in late 2008 and 2009'. More in BOE Diverged on Rate Decision. One Favored Rate Hike.
FOMC rate decision will be the next focus. We expect the Fed will reiterate the stance to keep the policy rate at 'exceptionally low level' for an 'extended period'. However, given some disappointing economic data released since the last meeting and elevated sovereign crisis in the Eurozone during the period, the economic outlook may be modestly downgraded and the overall statement may look more dovish. More in Fed May Deliver A More Dovish Statement In June, Leave Rates Unchanged.
Canadian dollar is sharply lower today after poorer than expected retail sales data which showed -2.)% mom fall in April with -1.2% in ex-auto sales. UK CBI distributive trades improved sharply from -18 to -5 in June. Eurozone PMI manufacturing dropped less than expected to 55.6 in June while PMI services dropped more than expected to 55.4. German Gfk consumer sentiment was unchanged at 3.5 in Q1.
GBP/CAD's strong rally today suggests that rebound from 1.4831 is resuming and further rise would be seen to 1.5897 cluster resistance (23.6% retracement of 1.9299 to 1.4831 at 1.5885) next.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 90.23; (P) 90.66; (R1) 91.00;
USD/JPY's break of 90.28 confirms that fall from 92.87 has resumed and further decline should be seen to 88.97 next. Break there will suggest that whole consolidations pattern from 88.25 is finished at 92.87 already and whole fall from 94.97 is resuming for 88.13 and below. On the upside, however, break of 91.46 resistance will dampen the bearish case and flip intraday bias back to the upside for 92.87 and above.
In the bigger picture, USD/JPY is still trading below a falling 55 weeks EMA and whole down trend from 124.13 is possibly not over yet. Break of 88.13 support will indicate that rebound from 84.81 has completed with three waves up to 94.97 already. The corrective structure will affirm the bearish case and pave the way to a new low below 84.81. On the upside, however, break of 94.97 will revive the case that 84.81 is already the long term bottom and will target 101.43/65 medium term resistance zone for confirming this bullish case.
Economic Indicators Update
GMT Ccy Events Actual Consensus Previous Revised 22:45 NZD Current Account Balance (NZD) -0.180B -0.250B -3.574B 06:00 EUR German GfK Consumer sentiment Q1 3.5 3.3 3.5 07:30 EUR German PMI Services Jun A 54.6 54.7 54.8 07:30 EUR German PMI Manufacturing Jun A 58.1 58 58.4 08:00 EUR Eurozone PMI Services Jun A 55.4 55.9 56.2 08:00 EUR Eurozone PMI Manufacturing Jun A 55.6 55.3 55.8 08:30 GBP BoE Meeting Minutes 1--0--7 0--0--9 0--0--9 10:00 GBP U.K. CBI Distributive Trades Jun -5 -17 -18 12:30 CAD Retail Sales M/M Apr -2.00% -0.40% 2.10% 12:30 CAD Retail Sales Less Autos M/M Apr -1.20% 0.00% 1.70% 14:00 USD New Home Sales May 430K 504K 14:30 USD Crude Oil Inventories -1.2M 1.7M 18:15 USD FOMC Interest Rate Decision 0.25% 0.25%