Sterling remains the main focus today as selling intensified in European session. Dollar managed to rebound strongly against European majors but stays is soft against yen and commodity currencies. Data from US saw personal spending rose more than expected by 0.5% in January but income growth missed expectation. PCE deflator was unchanged at 2.1% yoy while core PCE moderated slightly to 1.4% yoy. On the other hand, Canadian dollar is lifted mildly by stronger than expected GDP growth of 0.6% mom in December. Focus now turns to ISM manufacturing index.

Sterling is sold off sharply as the week starts and selling intensified in European session, weighed down by a couple of factors. Firstly, an opinion poll out on Sunday suggested inconclusive result in this year's general election, due by June 3, even though the ruling Labour Party could remain the biggest party. Investors worried that will result in a hung government which would not be able to implement measures needed to cut UK debt, nor revive the economy. Secondly, markets are concerned of more quantitative easing from BoE and some suggested that the bank is now considering QE at every policy meeting, rather than on quarterly assessment. Such change raised the uncertainty gong forward. Thirdly, the pound is also pressured by M&A flows on Prudential's $35.5b purchase of AIG Asia. Fourthly, markets are obviously more sensitive to the disappointing housing data today which showed mortgage approvals dropped more than expected to 48k. Manufacturing PMI was unchanged at 56.6.

Data from Eurozone saw unemployment rate unchanged at 9.9% in January, versus downwardly revised 9.9% in December. Manufacturing PMI was revised slightly up to 54.2 in February. German import prices rose 1.7% mom, 1.4% yoy in January. Swiss SVME PMI rose to 57.4 in February.

RBA rate decisions will be the main focus in the coming Asian session. While RBA's tightening cycle, which began late last year, will continue in 2010, more rate hikes will be delivered in 2H10 as policymakers need to gauge how previous hikes feed through to the economy. We expect the central bank will keep its cash rate unchanged at 3.75% in March.

GBP/AUD was one of the biggest losers last month and remains under huge pressure today. The cross dived to as low as 1.6547 so far as the down trend accelerates. As note before, further decline is expected to cluster level at 61.8% projection of 2.0979 to 1.7326 from 1.8276 at 1.6018, 100% projection of 2.7092 to 2.0231 from 2.2877 at 1.6016, which are also close to 1.6 psychological level. A break above 1.7053 support turned resistance is needed to be the first sign of stabilization. Otherwise, outlook will remain bearish.

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Looking at the dollar index, the stronger rally today and break of 81.13 resistance argues that consolidation from 81.34 might have finished at 80.12 already. Intraday bias is now on the upside for 81.34 first. Break will confirm the whole rise medium term rise from 74.19 has resumed for next target of 82.63 support turned resistance.

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GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 134.58; (P) 135.64; (R1) 136.65; More

GBP/JPY's decline accelerates further to as low as 132.13 so far. Intraday bias remains on the downside for next target of 100% projection of 150.68 to 138.23 from 143.59 at 131.14. On the upside, above 134.48 minor resistance will turn intraday bias neutral and bring consolidations. But upside is expected to be limited by 138.23 support turned resistance and bring fall resumption.

In the bigger picture, medium term rebound from 118.18, which is a correction to the long term down trend from 07 high of 251.90, has completed at 163.05 already. Decline from 163.05 is tentatively treated as resumption of the long term down trend from 2007 high of 251.09 and should target a new low below 118.81. On the upside, break of 143.59 resistance is needed to invalidate this view. Otherwise, outlook will remain bearish.

img class=hand onload=resizeImg(this,450) src=http://www.actionforex.com/images/stories/contributors/actionforex/gbpjpy20100301b.gif border=0 alt=GBP/JPY 4 Hours Chart />