Daily Report: Dollar and Yen Steady, Sterling Boosted by Sentance's Comments

Dollar and yen remain in range today, even though Asian stocks are broadly lower in response to China's measure to curb lending, including hiking bill yields and raising reserve requirements. Sterling, on the other hand, is boosted by comments from BoE Sentance that suggests the bank might pause the quantitative easing program. Crude oil extends recent pullback and drops below 80 level while gold is also trading below 1130. We'd expect the intermarket development to provide some support to greenback in near term for stronger rebound.

BoE MPC committee member Andrew Sentance said in an interview with Guardian that "at some point you have to say we have increased the amount of stimulus enough. It doesn't mean you are going to withdraw it but you don't have to keep adding to it." Also, he said that impact of oil and commodities prices, and sterling, on inflation need to be considered and the bank is approaching a point that need to "hold back and wait and see" how stimulus is "flowing into the recovery". He also express his confidence that there is little risk of a "double-dip recession" in UK.

Looking at intermarkets, crude oil has clearly made a short term top at 83.95 earlier this week and gold's choppy rebound has possibly completed at 1163, just ahead of 61.8% retracement of 1227.5 to 1075.2 at 1169.3. The near term trend in commodities should have reversed and we're expecting some support to the greenback for rebound sooner or later. At this point, intraday bias in dollar index is neutral as it's still struggling around 38.2% retracement of 74.19 to 78.45 at 76.82. But after all, we'd expect this fibonacci level to hold eventually to conclude the consolidation pattern fro 78.45 and bring resumption of rise from 74.19. Above 77.30 minor resistance will flip intraday bias back to the upside. Further break of 78.19 resistance will suggest that dollar's rise is resuming for 38.2% retracement of 89.62 to 74.19 at 80.08. However, sustained trading below 76.82 will pave the way for deeper correction towards 61.8% retracement at 75.81.

The economic calendar is relatively light today. Japan machine tool orders rose 62.8% yoy in December. UK industrial production and manufacturing production will be released later today and are expected to show 0.3% mom, 0.2% mom rise in November. Crude oil inventories, Fed's beige book will also be released in the US session.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.6087; (P) 1.6140; (R1) 1.6219; More

GBP/USD's rise from 1.5896 resumes and at this point, intraday bias remains on the upside. Such rise could still extend further towards 100% projection of 1.5829 to 1.6327 from 1.5896 at 1.6304 as whole consolidations from 1.5829 continues. But after all, upside should be limited below 61.8% retracement of 1.6875 to 1.5829 at 1.6475 and bring resumption of the whole fall from 1.6875. On the downside, break of 1.6063 minor support will indicate that such consolidation has possibly completed and break of 1.5829 low will target 1.5706 key cluster support next.

In the bigger picture, we're still favoring the bearish case that medium term rebound from 1.3503, which is is treated as a correction to down trend from 2.1161, has completed at 1.7043. Firm break of 1.5706 cluster support (38.2% retracement of 1.3503 to 1.7043 at 1.5691) will confirm this case and indicate that whole down trend from 2.1161 is likely resuming for a new low below 1.3503.

However, note that sustain break of 61.8% retracement of 1.6875 to 1.5829 at 1.6475. will in turn indicate that whole fall from 1.6875 has completed and recent price actions from 1.7043 are merely consolidations to the larger rise from 1.3503 only. That is, whole medium term rise from 1.3503 might not be finished yet and another rise could still be seen to 1.7332/8236 (50% and 61.8% retracement of 2.1161 to 1.3503) before completion.

Economic Indicators Update

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