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Daily Forex Technical Report

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Mid−Day Forex Technical Report − Sterling Still the Biggest Loser after Worse than Expected GDP Contraction

Fri, Jan 23 2009, 13:21 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Sterling Still the Biggest Loser after Worse than Expected GDP Contraction

The overall themes in the forex markets are unchanged, with Sterling's weakness being the main focus, in particular after deeper than expected contraction in UK GDP in 4Q. GBP/JPY and GBP/USD have fallen -2.6% and -2.1% today and are having cumulative loss of -11% and -8.5% respectively this week. Yen strength is also catching up as risk aversion is back following weakness in European stocks markets. EUR/JPY and AUD/JPY both lose over -2% so far today. Dollar, on the other hand, benefits from risk aversion once again and resumes recent rally.

Data released in US session saw Canadian CPI dropped more than expected by -0.7% mom in Dec. Yoy rate is down from 2.00% to 1.2% comparing to consensus of 1.4. Core CPI dropped -0.4% mom, rose 2.4% yoy. Markets has little reaction to the data after a week of BoC rate cut and monetary policy report update.

UK's preliminary 4Q GDP contracted -1.5% qoq (consensus: -1.2%, Q3: -0.6%), the worst since 2Q80, officially entered into recession with two consecutive quarters of contraction. In annualized terms, UK GDP fell -1.8% yoy, overshadowing the -1.4% slide expected. Prime Minister Gordon Brown said that UK will fight this recession with "with every weapon at our disposal. December's retail sales unexpectedly rose 1.6% mom, compared with market expectation of -0.3% and November's +0.3% due to holiday effect. However, the reading may be distorted due to cut in VAT, aggressive discounts and early Christmas sales during the period. After all, there is little support for the pound.

In the Eurozone, overall PMI improved slightly to 38.5 in January from a record low of 38.2 in December. Both the manufacturing and service components ticked higher to 34.5 (consensus: 33.2) and 42.5 (consensus: 41.5) from 33.9 and 42.1, respectively. The Germany composite output index, on the other hand, dropped to record low of 38 in January from 39.5 in the previous month with the manufacturing PMI plunging to 32 from revised 32.7 in December and service component sliding to 45.4 from revised 46.6.

In its monthly report for January, the Bank of Japan reduced its economic forecast for the 3rd straight month as ‘Japan's economic conditions have been deteriorating significantly'. On Thursday, the central bank revised down its real GDP growth estimate for the fiscal year ended Mar 09 to -1.8%, compared with October's projection of +0.1%. Moreover, forecast for fiscal year 2009 is also lowered to -2% from +0.6% projected in October.

Technically, dollar index's rally is still in progress, and climbs further to 86.79 so far. Intraday bias will remain on the upside as long as 85.23 minor support holds. Current rise from 77.69 is expected to extend to retest 88.46 high. Below 86.23 will turn intraday outlook neutral and bring consolidation first.

More Forex Technical Analysis Reports Here.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3702; (P) 1.3861; (R1) 1.4035; More

GBP/USD's decline resumes by taking out 1.3621 low and dives further to as low as 1.3533 so far. At this point, intraday bias remains on the downside as long as 1.3914 minor resistance holds. Further decline should now be seen to 61.8% projection of 1.8668 to 1.4557 from 1.5722 at 1.3186 next. On the upside, above 1.3914 will turn intraday outlook neutral and bring consolidation. But short term outlook will remain bearish as long as 1.4469 support turned resistance holds.

In the bigger picture, as discussed before, decline from 2.0158 is interpreted as being a five wave sequence (1.7445, 1.8668, 1.4557, 1.5722). Fifth wave decline from 1.5722 is still in progress and sustained trading below 1.3680 long term support (50% projection of 1.8668 to 1.4557 from 1.5722 at 1.3667) is setting the stage for further decline to 61.8% projection of 1.8668 to 1.4557 from 1.5722 at 1.3186 next. Break will target 100% projection at 1.1611.

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Published on  Fri, Jan 23 2009, 13:37 GMT