Daily Report: Focus on BoE Inflation Report, Bernanke's Exit Plan, and Still on Greece

Greece is still in center of focus in the financial markets. Euro was lifted by rumors that there will be a rescue plan led by Germany, which falls under the EU framework, for Greece. German Finance Minister Wolfgang Schäuble will brief lawmakers today on the plan before EU summit tomorrow. There is no details on the plan yet but it's believed that Germany has already concluded that guarantees are likely the most efficient way to prevent the spread of the debt crisis. Euro might be lifted in near term should the plan is finalized but the longer them impact is unclear as it might further damage trust in the common currency. The development will be closely watched by all investors. In addition, markets will pay close attention to BoE quarterly inflation report and Bernanke's testimony on exit strategies today.

In the November Inflation Report, BOE predicted that on unchanged Bank Rate of 0.5% CPI would already be on the cusp of the 2.0% inflation target by Q3 2011 (1.99%) and would be well above it by Q4 of the same year (2.35%). However, one important thing to note is that BoE has consistently underestimated inflation and the CPI readings has persistently come in higher than the bank's forecast. As BoE governor Kind said in January, CPI will likely rise to over 3% for a while or even higher. The bank will surely have to revise up prior projections. On the other hand, growth have be disappointing and the UK economy has merely just got out of recession in Q4. It would be interested to see how BoE weigh on the upside risk to inflation and the downside risk to growth in this inflation report.

Fed Chairman Bernanke is set to outline the exit strategies today on his testimony to before the House Financial Services Committee. So far, the main question is when and how Fed should start raising interest rates, which has been at a record low for more than a year already. In addition, focus will be on how Fed could eventually shrink the record $2.2T balance sheet.

Other events to watch today include UK industrial and manufacturing production. Canada trade balance, US trade balance.

Technically, dollar index' pull back from 80.68 continued as expected and touched 4 hours 55 EMA. More consolidations could still be seen with risk of another fall. But after all, we'd expect downside to be contained by 78.68/79.53 support zone and bring rally resumption. Above 80.25 minor resistance will flip intraday bias back to the upside for retesting 80.68 high first.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3680; (P) 1.3759; (R1) 1.3876; More.

EUR/USD's recovered to as high as 1.3838 but was still limited below mentioned 1.3852 support turned resistance so far. While further rise cannot be ruled out, we'd continue to expect upside to be limited by 1.3852/4025 resistance zone and bring fall resumption. Below 1.3690 minor support will flip intraday bias back to the downside for 1.3585 low first. Break will target 61.8% retracement of 1.2329 to 1.5143 at 1.3404 next.

In the bigger picture, three wave rise from 1.2329 is treated as consolidation to fall from 1.6039 only and should have completed at 1.5143 already. Fall from 1.5143 is tentatively treated as resumption of the whole down trend form 1.6039 and should target a new low below 1.2329. Break of 1.4217 resistance is needed to be the first signal of medium term bottoming. Otherwise, outlook will remain bearish even in case of strong rebound.

Economic Indicators Update

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