Daily Report: Sterling Broadly Lower on Political Concern

Sterling drops further across the board as the week starts on concern of the political situation in UK as well as speculation of more quantitative easing from BoE. An opinion poll out on Sunday suggested inconclusive result in this year's general election even though, the ruling Labour Party could remain the biggest party. Yen is steadily in range in spite of broad based rally in Asian stocks. Dollar, on the other hand, recovers mildly as crude oil fails to hold ground after breaking 80 level. A number of important economic data will be released across Atlantic today and we'd look forward to more volatility as the day goes.

Manufacturing data will be a major focus. In particular, sterling would be vulnerable to the downside in case of disappointment from UK manufacturing PMI, which is expected to drop slightly from 56.7 to 56.4 in Feb. Swiss SVME is expected to be unchanged at 56 in Feb. PMI Eurozone manufacturing PMI is expected to be finalized at 54.1 in Feb. Eurozone unemployment rate is expected to rise from 10.0% to 10.1% in January.

From US, personal income and spending are both expected to rise 0.4% in January. PCE core is expected to slow slightly to 1.4% yoy in Jan with headline PCE to climb to 2.1%. ISM manufacturing index will also be closely watched and is expected to drop from 58.4 to 57.9. Canada GDP is expected to rise 0.4% mom in December.

Talking about weakness of Sterling, GBP/CAD gapped through 1.6 level today and dived to as low as 1.5907 so far. Short term outlook will remain bearish a s long as 1.6348 resistance holds and we'd expect the down trend to continue to 100% projection of 1.9299 to 1.6233 from 1.7890 at 1.4824 next.

USD/CHF Daily Outlook

Daily Pivots: (S1) 1.0679; (P) 1.0748; (R1) 1.0801; More.

USD/CHF consolidations from 1.0897 is possibly still in progress in spite of today's recovery. Another fall cannot be ruled out but after all, we'd expect downside to be contained by 1.0608 cluster support (38.2% retracement of 1.0131 to 1.0897 at 1.0604) and bring rally resumption. Above 1.0877 will flip intraday bias back to the upside. Sustained trading above medium term trend line resistance (now at 1.0832) will pave the way to 161.8% projection of 0.9916 to 1.0506 from 1.0131 at 1.1086 next.

In the bigger picture, there is no change in our view. Medium term correction from 1.2296 should have completed with three waves down to 0.9916 already. Current rise from 0.9916 is tentatively treated as resumption of the long term up trend from 2008 low of 0.9634. Sustained break of mentioned medium term trend line resistance (now at 1.0832) will further affirm this view. In such case, we'd be looking at stronger rise to 1.1963/2296 resistance zone in medium term. On the downside, break of 1.0131 support is needed to invalidate this bullish view. Otherwise, another rise is still expected even in case of deep pullback.

Economic Indicators Update

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