Mid-Day Report: Dollar Extends Post FOMC Losses, Sterling Surges

Dollar remains pressured today as post-FOMC decline resumed after brief consolidation. Sterling was additional boosted by BoE comments on inflation. BoE Governor Mervyn King testifies today together with policy makers John Give, Timothy Besley, Paul Tucker and Kate Barker. All of them said they had considered a hike this month even though in the end the decision to keep rates unchanged at 5.00% was done by a 8-1 vote with Blanchflower voted for a cut. Also, all of them are clearly concerned with rising inflation risk and expectations and headline CPI in UK may exceed 4% later this year. Though, King still emphasized that BoE should not 'overreact" to surge in energy prices and won't risk bringing the economy into deep recession by raising interest rates easily.

Technically speaking the break of 1.9852 resistance is inline with the broad view that GBP/USD should be in another rise towards 2.0391 resistance as consolidation from 1.9337 continues.

Economic data released in US did little support to the greenback. Q1 GDP was revised high from 0.9% 1.0%. Jobless claims climbed higher and remains above 380k at 384k. Existing home sales unexpected rose 2.0% to 3.99 annualized rate. Euro remains supported as data showed M3 money supply growth came in at 10.5% yoy, with 3 months averages at 10.4%. Germany import prices growth accelerated to 2.4% mom in May, an 18 years high, yoy rate also accelerated sharply to 7.9% versus expectation of 6.9%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.9680; (P) 1.9724; (R1) 1.9793; More

Cable's rise from 1.9408 finally resumes today by surging sharply higher to 1.9895 so far, taking out 1.9852 support. As mentioned before, this will be consistent with the broader view that rise from 1.9363 represents another rising leg of the consolidation pattern that started at 1.9337. At this point, intraday bias remains on the upside as long as 1.9797 minor support holds. Break of 100% projection of 1.9363 to 1.9852 from 1.9408 at 1.9897 will encourage stronger rise towards 161.8% projection at 2.0199. On the downside, below 1.9797 will turn intraday outlook neutral first and bring consolidation. But downside should be contained above 1.9586 support and bring rally resumption.

In the bigger picture, down trend from 2.1161 have made a low at 1.9337. The corrective nature of the rise from 1.9337 to 2.0391 and fall from 2.0391 to 1.9363 suggests that price actions from 1.9337 are developing into sideway consolidation to whole fall from 2.1161. Though, the structure and length of this consolidation could either be in form of a three wave sideway consolidation or in form of five wave triangle pattern. But in either case, another rise is still expected to test 2.0391 resistance. Nevertheless upside of such consolidation should still be limited by 61.8% retracement of 2.1161 to 1.9337 at 2.0464. On the downside, sustained break of 1.9337/63 support zone will indicate that decline from 2.1161 has resumed.

Forex News Digest

• Higher Jobless Claims Data Indicates Job Market Deterioration, Economists Say
• U.S. Jobless Claims Unchanged at 384K in Week Ending June 21
• Final U.S. Q1 GDP Unrevised As Expected, Core PCE & GDP Price Index Revised Up
• BOE's King Expects Inflation to Exceed 4% in 2008 (Update)
• Fed's Kohn Says Financial Markets Remain Stressed
• Overnight News Recap: BOE Testimony; EU M3; FR Cons Conf Falls; BOJ's Nakamura
• Yen Falls to Record Low Versus Euro on Rate Outlook, Lure of Higher Yields
• Australian, New Zealand Dollars Gain on Reduced Bets of Fed Rate Increase
• Fed Sounds Inflation Alarm, Takes `Baby Step' Toward Raising Interest Rate
• Euro Gain May Stall at $1.5726 on Technical Charts, Societe Generale Says

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