Dollar and Yen Retreats Further on Rising Stocks, EUR/GBP Dives

Market sentiments continue to improve on broad based rally in European stock markets which sees FTSE, DAX and CAD rising over 2%. Yen continues to weaken, in particular against Aussie, Kiwi and Sterling. Dollar, on the other hand retreats further together with the Japanese yen. Euro, on the other hand is seen weaker in the current rebound against dollar and yen. Indeed, EUR/GBP dives to as low as 0.8843, pressing 0.8838 low as well as medium term trend line support.

Technically speaking, EUR/GBP is now in an important support zone with medium term trend line support at 0.8867 and 55 days EMA at 0.8821. Further decline is still in favor as low as 0.9127 resistance holds. Sustained break of 0.8821/67 support zone will be an important signal that rise from 0.7693 has completed at 0.9799 already. More importantly, this will be an indication that whole long term rally from 0.6535 has completed with five waves up to 0.9799 too (0.6867, 0.6678, 0.8195, 0.7693, 0.9799). In such case, much deeper medium term fall could be seen towards 0.8195 cluster support. Though, on the upside, above 0.9127 will suggest that the fall from 0.9799 has stabilized, at lease from short term angle, and bring rebound first.

Swiss PPI dropped 0.7% mom (consensus:-0.6%; November: -1.4%) in December as driven by decline in oil price. On annual basis, input price rose 0.4%, lower than market expectation of +0.6% and +1.1% in November. The Eurozone recorded a deficit of 4.9B euro in November after a surplus of 0.9B euro in the previous month.

Later in US session, December's CPI is expected to have dropped -0.9% mom , the 9th consecutive month of decline after -1.7% and -1% in November and October respectively. Energy prices would again lead the fall while auto, household and other consumer goods should have plunged significantly. Excluding food and energy, core CPI was probably up 0.1%. On annual basis, overall CPI is anticipated to have dropped -0.2%, the first negative reading since 1955, while core CPI should have eased to 1.9% in December, from 2% in November.

US Industrial production in December should have dropped -1% after falling -0.6% in November as manufacturing reduced production in response to falling demand and surging inventory level. December's capacity utilization probably fell to 74.6% from 75.4% a month ago. University of Michigan will release preliminary data on January's consumer confidence which would have dropped to 59 from 60.1 in the previous month, indicating consumers are still worrying about the economic conditions and employment prospects. US' treasury TICs report would show that overall net inflows have increased by US$ 2B in November from US$ 1.5B.

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