Mid−Day Forex Technical Report − Dollar Surges on Stronger than Expected Data, FOMC Minutes Awaited

Wed, Feb 20 2008, 14:34 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Mid-Day Report

Dollar Surges on Stronger than Expected Data, FOMC Minutes Awaited

Dollar surges in early US session, after release of stronger than expected inflation and housing data. Headline CPI rose 0.4% mom in Jan, pushing yoy rate higher from 4.1% to 4.3%, above expectation of 4.2% and just slightly below the two year high of 4.4% last November. Core CPI rose 0.3% mom, pushing yoy rate from 2.4% to 2.5%, which also beat expectation and being at a 11 month high. Housing starts surprisingly recovered by 0.8% to 1012k annualized rate in Jan after two consecutive months of decline. Building dropped -3.0% to 1048k. Dollar's strength could be attributed to markets' view that higher inflation could tie Fed's hands up for more aggressive rate cut in the near term.

However, note that FOMC minutes will be released later today, together with the latest forecast for inflation, growth and unemployment. Bernanke indicated in his testimony last week that the Fed has revised down its forecast but the magnitude is so far unknown. The strength in dollar could be reversed if the revision in the forecasts are much deeper that markets have thought of.

Sterling is additionally pressured today after release of the BoE meeting minutes. The minutes revealed that the decision to cut interest rates by 25 basis points this month was supported by eight of nine monetary policy committee members. More importantly, David Blanchflower, the 'ultra-dove', voted for a cut of 50bps. Though, in generally, inflation pressures remains in most committee member's mind even though slower growth is still the major concern.

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GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.9444; (P) 1.9492; (R1) 1.9532; More

Cable dives further to as low as 1.9361 in early US session. Break of 1.9386 confirms that fall from 1.9957 has resumed. At this point, intraday bias remains on the downside as long as 1.9444 minor resistance holds. Further decline is expected to 1.9337 low first. As discussed before, whole down trend from 2.1161 could have already resumed and break of 1.9337 will encourage further decline to next downside target of 1.9183 medium term support. .

Above 1.9444 will turn intraday outlook consolidative first. Further break of 1.9737 resistance will suggest that cable is indeed still bounded in consolidation pattern that started at 1.9337. In such case, further rebound should be seen to retest 1.9957 resistance before completing the consolidation and resuming the down trend from 2.1161.

In the bigger picture, as discussed before, prior break of medium term rising channel and 2.0 psychological level at least indicate that rise from 1.8090 has already completed at 2.1161. With 55 weeks EMA taken out too, it's likely that the medium term up trend from 1.7047 has also completed. Deeper medium term decline is expected towards 61.8% retracement of 1.7047 to 2.1161 at 1.8619. Such view will still hold as long as 2.0099 resistance holds.