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Mid−Day Forex Technical Report − Sterling Rounds on Record Producer Price Inflation

Mon, May 12 2008, 13:16 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report:

Sterling Rounds on Record Producer Price Inflation

The British Pound stages a strong rebound across the board today after strong producer price inflation data prompted further speculation that BoE won't speed up the pace of policy easing. PPI input accelerated sharply to 23.3% yoy in Apr, beating expectation of 21.5% and was the highest reading since the series began in 1986. Output PPI climbed from 6.2% yoy to 7.5%, above expectation of 6.4%. Core PPI was also up from 3.0% to 4.5% versus consensus of 3.2%. The acceleration in upstream inflation is expected to be passed on to consumers which could be seen in tomorrow's CPI report from UK. There have been growing speculations that BoE could speed up the pace of rate cut after a string of economic data showed further slow down in the economy. However, the speculations receded somewhat after today's PPI report. After all, BoE is still left in a different position where it's facing inflation threat on the one hand and weakness in the economy on the other hand. UK trade balance release today showed -7.44 b deficits in Apr. The strength in Sterling is more apparent against yen and swissy today as both pairs pared last week's gains broadly.

Elsewhere, markets remain generally in consolidation mode. Aussie was sent lower earlier today after NAB business confidence slumped in Apr from -4 to -8, arguing that there could be slowing in domestic demand and business conditions ahead. But the Aussie quickly rebounds and remains bounded in choppy trading. Canadian dollar strengthens mildly today but still it's just part of the movements inside consolidation pattern and could be short lived. Canadian new housing price index rose 0.2% in Mar as expected. Euro is mixed, strengthen against yen but weakening against Sterling and stay in tight range against dollar.

More Technical Analysis Reports Here

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.9473; (P) 1.9522; (R1) 1.9584; More

Cable recovers strongly after edging lower to 1.9442 earlier today. As mentioned before, even though downside momentum seems diminishing, intraday bias remains on the downside as long as 1.9621 resistance holds. Prior break of 1.9599 support indicates that decline from 2.0391 has resumed for retest of 1.9337 low. On the upside, above 1.9621 resistance will turn intraday outlook neutral first and bring stronger rebound.

In the bigger picture, down trend from 2.1161 have made a low at 1.9337. Rebound from there should have completed with three waves up to 2.0391, which is corrective in nature. Subsequent fall form there also display a corrective structure too. In other words, wide range consolidation from 1.9337 is expected to extend further. Hence, current fall from 2.0391 will likely be contained by 1.9337 support and be followed by another rise to retest 2.0391 resistance or above before completing the consolidation. Break of 1.9772 resistance will be the first signal that the final rally of the consolidation has started.

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Published on  Mon, May 12 2008, 13:21 GMT

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