Daily Report: Sterling Lower ahead of BoE Minutes, Yen Steady

Sterling was the only major currency that failed to participate in this week's risk rally so far. And indeed, the pound has weakened quite noticeably against dollar, euro and swissy. Euro's rebound on bond auctions was one of the major factors. But sterling's weakness could also be attributed to the inflation readings that clearly showed a declining trend even thought he headline inflation stayed above BoE's target range of 2-3%. In particular, core CPI has indeed dropped sharply from 3.1% to 2.6%. BoE minutes to be released today will be the main even risk to determine whether sterling would continue this week's weakness. Andrew Sentance was the only member that voted for rate hikes on inflation outlook in prior meetings. Sterling would possibly face more selling pressure should the minutes reveal a change, or softening in Sentance's stance.

Else where, yen remains steadily in range so far. A former top currency official in Japan, "Mr Yen" Eisuke Sakakibara said that as US prefer a weak dollar to promote exports, they won't support Japan's intervention to curb yen strength. And, without support of US, "intervention on the part of the Japanese government wouldn't’t be effective." Meanwhile, as Japanese monetary policy is "already quite easy", additional easing wouldn't have much impact on the exchange rate. Also, he said that yen is not strong compared to 1995 when it broke 80 in "real terms". That is, 80 in 1995 is comparable to 60 to 70 today only. Hence, he played downed the impact of yen's strength and conclude that "we shouldn't be too much worried about the yen being 85 or 80 at this moment".

Dollar index recovers mildly after dipping to 82.02 yesterday. Price actions from 83.01 are treated as consolidative only and we'd expect downside to be contained by 81.54 cluster support and bring another rise. At this point, we're still favoring the case that whole corrective fall form 88.70 is finished at 80.08 already. Decisive break of 83.45 cluster resistance (38.2% retracement of 88.70 to 80.08 at 83.37) will confirm this case and target 61.8% retracement at 85.40 at least. However, break of 81.54 support will dampen this bullish view and turn focus back to 80.04 low instead.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5526; (P) 1.5610; (R1) 1.5670; More.

GBP/USD's fall from 1.5997 resumed after brief recovery was limited by 4 hours 55 EMA. Intraday bias is back on the downside for 1.5123 cluster support (50% retracement of 1.4230 to 1.5997 at 1.5114). Also, note that the sustained trading below near term rising trend line suggests that whole rally from 1.4230 is completed too after failing 1.6 psychological level. Decisive break of 1.5123 will confirm this case and target a retest on 1.4230. On the upside, above 1.5701 will flip intraday bias back to the upside for some recovery. But after all, risk will continue to remain on the downside as long as 1.5997 resistance holds.

In the bigger picture, price actions from 1.3503 are viewed as consolidation to fall from 2.1161 only with rise from 1.4230 as the third leg. In any case, a break of 1.4230 support will indicate that the consolidation might be completed and down trend from 2.1161 is possibly resuming for another low below 1.3503. In case of another rise, we'd expect strong resistance between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 and finally bring long term down trend resumption.

Economic Indicators Update

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