Mid-Day Report: Sterling Lifted by Risk Appetite and King's Comments

Sterling along with Aussie are the major winners today on risk appetite trades. US stocks open higher following strength in European equity markets, with DOW takes back 8600 level. major European indices are up with FTSE rising most by over 80 pts so far. BoE Governor King sounded upbeat by saying the the economic contraction is UK is begining to "flatten off" and recession may be easing. EUR/GBP pared this gains the last two days and is set to retest this week's low of 0.8412.

Economic calendar was rather light today. Canadian retail sales unexpectedly dropped -0.8% mom in April with ex-auto sales dropping -0.5% while consensus expected -0.1% in both figure only. German PPI was flat mom in May but dropped -3.6% yoy, inline with consensus.

BoJ minutes showed some policy board members thought BoJ should consider exiting the current quantitative easing measures based on "close examination of developments in financial markets and corporate financing." One member suggested to pay attention to risk of rising bond yields as the Japanese government plans to issue more debt. Some members are concern concerned with deflationary expectations.

Following up on GBP/CHF, after all the volatility, the cross is back pressing this week's high of 1.7883. As mentioned before, there is not enough evidence to suggest the cross has topped out yet, at least, not until yesterday's low of 1.7464 is taken out. Further rally is still in favor, probably to upper side of key resistance zone near to 1.8966. Nevertheless, focus should remain on reversal signal as GBP/CHF stays in mentioned 1.7425/8966 resistance zone.

AUD/USD Mid-Day Outlook

Daily Pivots: (S1) 0.7911; (P) 0.7982; (R1) 0.8052; More.

AUD/USD's break of 0.8067 minor resistance suggests that fall from 0.8236 has completed and the development so far suggests that price actions from 0.8262 are merely consolidation in the larger rally. Intraday bias is flipped back to the upside for retesting 0.8236/8262 resistance zone first. Further break of 0.9236 resistance resistance will indicate that recent rally is still in progress, but after all, focus will remain on reversal signal as AUD/USD approaches 0.8519 key resistance.

In the bigger picture, AUD/USD price actions from 0.6008 are treated as correction to down trend from 0.9849 only and has already met target zone of 0.7802/0.8519. A break below 0.7449 support will starts to argue that such consolidation has completed and will turn focus to 0.6988 for confirmation. Break there will bring retest of 0.6008 low. On the upside, another rise cannot be ruled out for the moment, but after all, even in case of another rise, we'd continue to look for reversal signal as AUD/USD approaches 0.8519.

However, note that sustained break of 0.8519 resistance will seriously dampen this view and argue that the sharp decline from 0.9849 to 0.6008 was indeed a correction to long term rally from 0.4773 to 0.9849 only. And in such case, stronger medium rise could then be seen to retest 0.9849 high.

Economic Indicators Update

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