Mid-Day Report: USD/CAD Breaks Out on Broad Based Dollar Strength

USD/CAD finally takes out 1.3 key resistance on broad based dollar strength as well as concern of worry on the Canadian economy. Canadian housing starts fell sharply by -12.3% to 134.6k in Feb, the sixth consecutive monthly decline. BoC cut rates by another 50bps to 0.50% last week and expressed that the bank is going into quantitative easing. Nevertheless, the result is yet to be seen so far.

Sterling remains under tremendous pressure on worry on the banking sector. Shares of Lloyds, UK's largest mortgage lender, fell 14% after news that it will join the government's Asset Protection Scheme and cede control to the government. Barclays is also believed to be negotiation some form of rescue package. HSBC is also sharply lower on concern over bad loans at the US unit. Sterling is sharply lower against across the board. In particular, EUR/GBP takes out an important near term resistance, confirming that correction 0.9799 has completed.

Dollar index's strong rise today argues that correction from 89.62 has already completed at 87.89. Focus now turns to this resistance and bring will bring rally resumption to 90.00. Nevertheless, as noted before, upside momentum is clearly diminishing as seen in bearish divergence condition in 4 hours MACD. A break below 87.89 will revive the case that a short term top is finally formed and bring deep pull back towards 83.58/86.81 support zone.

Eurozone Sentix Investor Confidence fell to new low of -42.7 in March, much worse than expectation of -37.8. Switzerland's unemployment rate climbed from 3.3% to 3.4% in Feb as expected. Market's focus will remain on SNB's meeting this week. While the upper band of Libor is expected to be lowered somewhat, focus will also be on any announcement os quantitative easing programs.

Japan's current account turned to a deficit of 172.8B yen in January, the first deficit since 1996 and significantly lower than a deficit of 15.3B yen as market expected, compared with a surplus of 125.4B yen in the previous month. Exports slumped 46.3% yoy (December: -35.1%) in January while imports declined 31.7% yoy (December: -21.2%) during month. Japan's economic watch DI improved slightly to 17.3 in February from 17.1 in December and the trough of 15.9 in December. Although still in very low level, the reading indicated signs of stabilization.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3986; (P) 1.4145; (R1) 1.4250; More

GBP/USD's decline accelerates further to as low as 1.3741 in early US session and remains pressured. Intraday bias remains on the downside as long as 1.3936 minor resistance holds. Further decline is expected to retest 1.3503 low. On the upside, above 1.3936 will turn intraday outlook neutral first and bring consolidation. But break of 1.4304 resistance is needed to indicate that fall from 1.4984 has completed. Otherwise, risk remains on the downside.

In the bigger picture, a medium term bottom is in place at 1.3503 after GBP/USD completed the five wave sequence from 2.0158 (1.7445, 1.8668, 1.4557, 1.5722, 1.3503). Price actions from 1.3503 is treated as correction/consolidation in the larger down trend from 2.1161. It's uncertain whether such correction from 1.3503 is developing into sideway consolidation below 1.5722 or a stronger rebound. Nevertheless, as long as 1.3503 low holds, such consolidation is still in favor to extend further with another rise before completion. Decisive break of this support is needed to confirm down trend resumption.

Forex News Digest

• Investors May be Underestimating Euro Zone Growth Potential, Says ECB's Trichet
• BNP Paribas Agrees to New Terms to Purchase Fortis Banking Operations
• Euro Zone Investor Confidence Falls to 6-Year Low
• Japanese Current Account Falls into First Deficit Since 1996
• Japanese Economy Watchers More Optimistic in February
• Yen Declines Against Dollar, Euro as Japan's Current-Account Gap Balloons
• Canadian Dollar Weakens to Lowest Since September 2004 on Growth Concern
• Pound Falls, U.K. 10-Year Yield Drops to Lowest Since 1989 on Bank Concern

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