Sterling dropped sharply after a news report saying that BoE is going to host a crisis meeting with major economists next Tuesday to discuss the quantitative easing program, raising speculation that a major change to the monetary policy framework would be announced. The news triggered renewed concern that BoE will be cutting the deposit rates. BoE Governor King said to a UK newspaper that Sterling's depreciation will be helpful to rebalance the UK economy to one that focused on exports, giving the green-light to further decline in the pound, in particular versus Euro. Sterling was lifted by the lack of discussion among MPC members about deposit rate cutting as shown in the minutes released yesterday. But the support on the pound disappeared today and Sterling dives to new low against Euro, Yen and Swissy.

GBP/CHF's break of 1.6620 cluster support is inline with our bearish view that rebound from 1.5111 has already completed at 1.8111. Fall from there is tentatively treated as resumption of the long term down trend from 2007 high of 2.4964. Next medium term target will be a test on 1.5111 low.


Elsewhere, dollar continue to stay in range against major currencies, paring some of the post FOMC rebound as Gold climbs back to 1020 level. Recovery in dollar is so far unconvincing as the greenback is still holding below near term resistance level against major currencies. Even GBP/USD is still staying above 1.6133 near term support. A new low in dollar is still possibly if Gold resumes recent rise but loss of momentum should keep the 1033.9 resistance in Gold intact on initial attempt. Hence, we're still favoring the case for 75.89 key support in the dollar index to hold eventually, with help from further selloff in crude oil and near term reversal in gold after testing 1033.9.

On the data front, jobless claims in US dropped slightly to 530k. German Ifo business climate rose from 90.5 to 91.3 in August but missed expectation of 92.1. Ifo President Hans-Werner Sinn said that appraisals of the business situation and outlook have improved. However, by far the greater number of firms still assesses the business situation as poor. Current assessment rose from 86.1 to 87 while expectation index rose from 95 to 95.7. Japanese trade surplus widened to 0.24T JPY in August. All industry index rose less than expected by 0.5% mom in July.

RBA said in its half-yearly financial stability that the Australian financial system has remained resilient and banks have performed better than many of their offshore peers. Drastic improvements are seen in banks' balance sheets and downside risks have eased.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 148.16; (P) 149.26; (R1) 150.28;

GBP/JPY's fall from 163.05 resumed and dived to as low as 146.38 so far, meeting mentioned cluster support of 146.15/75 (38.2% retracement of 118.81 to 163.05 at 146.15). At this point, intraday bias remains on the downside. Sustained break of 146.15/75 will confirm medium term reversal and target 50% retracement of 118.81 to 163.05 at 140.93 next. On the upside, above 147.67 minor support will turn intraday outlook neutral first but recovery should be limited by 150.35 resistance and bring fall resumption. However, break of 150.35 will argue that a short term bottom is formed and stronger rebound should be seen that send GBP/JPY through 153.22 resistance.

In the bigger picture, rise from 118.81, which is treated as correction the larger down trend from 07 high of 251.90, might have completed at 163.05 already, after failing to sustain above 55 weeks EMA. This view is supported by sustained trading below medium term rising trend line and with 55 weeks MACD staying below signal line. Decisive break of 146.75 support will confirm this bearish case by completing a double top reversal pattern (162.56, 163.05). In such case, deep decline should be seen that eventually send GBP/JPY through 118.81 low. On the upside, while another rise cannot be ruled out, upside is expected to be limited by 50% retracement of 215.87 to 118.81 at 167.34 to conclude such correction and bring reversal finally.


Economic Indicators Update

23:50JPYTrade Balance (JPY) Aug0.24T0.18T0.19T0.22T
01:30AUDRBA Financial Stability Review ---- 
04:30JPYAll Industry Activity Index M/M Jul0.50%0.80%0.10%0.20%
08:00EURGerman IFO - Business Climate Sep91.392.190.5 
08:00EURGerman IFO - Expectations Sep95.796.695 
08:00EURGerman IFO - Current Assessment Sep8787.686.186.2
12:30USDInitial Jobless Claims530K546K545K 
14:00USDExisting Home Sales M/M Aug 2.10%7.20% 
14:00USDExisting Home Sales Aug 5.35M5.24M 
14:30USDNatural Gas Storage 73B66B