Daily Forex Technical Report − Sterling Recovers Mildly ahead of Retail Sales, Philly Fed Survey Eyed

Thu, Feb 21 2008, 08:15 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Sterling Recovers Mildly ahead of Retail Sales, Philly Fed Survey Eyed

Sterling recovers mildly against major currencies ahead of retail sales report from UK. Sales is expected to rebound from Dec's -0.4% mom fall to rise 0.1% mom in Jan. Yoy rate is expected to climb from 2.7% to 4.6%. The expectation is inline with recent BRC survey which showed 2.6% rebound. So far, sterling has been under much pressure on expectation of further rate cut of 50bps to 75bps from BoE by the end of the year. Such expectation was reinforced by yesterday's dovish BoE minutes which showed ultra dove Blanchflower voted for a 50bps cut in Feb. It will need some persistent improvement in consumer spending to shift such expectations and any downside surprise today will trigger another round of sell off in the pound.

Elsewhere, the Japanese yen weakens mildly in general but is still staying in established range against dollar and Sterling. Data released overnight saw Jan trade balance unexpectedly turned to a deficit of -79.3b versus expectation of 8.2b, primarily due to strong import growth of 9.0%. All industry index dropped -0.2% in Dec, also weaker than consensus of -0.2%.

Dollar gave back most of the post CPI gains after yesterday's dovish FOMC minutes which also has growth forecasts revised sharply lower and unemployment forecasts revised higher. Focus will now turn to Philly Fed index which is expected to improve mildly from Jan's shockingly poor reading of -20.9 in Dec to -10.5 in Jan. Jan leading indicators is expected to drop -0.1%. Jobless claims, is expected to drop slightly to 345k but stay near to the 4 week moving average.

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GBP/JPY Daily Outlook

Daily Pivots: (S1) 209.02; (P) 209.95; (R1) 210.85; More

GBP/JPY turns into sideway consolidation after fall from 213.05 was initially contained by 61.8% retracement of 205.86 to 213.05 at 208.61. Nevertheless, intraday bias remains on the downside as long as 211.79 minor resistance holds. As discussed before, consolidation from 204.49 has possibly completed at 213.85, after being limited by inner falling channel resistance. Further decline is now expected to be see to retest 204.49 low. Meanwhile above 211.79 will dampen this view and turn intraday outlook neutral first.

In the bigger picture, the fall from 241.35 has made a short term low at 204.49, after being supported by double channel support and turned into sideway consolidation since then. Though, with the inner falling trend resistance remains intact, down trend from 241.35 should still be in force. Break of 204.49 low will confirm that such decline has resumed for next downside target of psychological support at 200, which overlaps with next medium term fibo support of 50% retracement of 148.19 (006) to 251.09 (07 high) at 199.64.

However, decisive break of 214.00 resistance, which will also have the inner falling channel taken out firmly too, will firstly indicate that fall from 241.35 has completed. Secondly, it will alert that whole down trend from 251.09 has possibly completed with three waves down to 204.49 too. Further break of 221.25 support turned resistance will have medium term outlook will turn neutral first in such case and focus will be back on outer channel resistance (now at 230.90).