Daily Forex Technical Report − Sterling Dragged Down by Steeper Fall in House Prices

Fri, Mar 28 2008, 07:25 GMT
by ActionForex.com Team

ActionForex.com

Action Insight Daily Report

Sterling Dragged Down by Steeper Fall in House Prices

Sterling weakens sharply in early European session after the release of much weaker than expected house price data. Nationwide house price's decline accelerated further to -0.6% mom in Mar, dragging yoy rate sharply lower from 2.7% to 1.1%. While the stronger than expected rebound in GBP/USD is messing up the outlook a bit, the clear weakness in EUR/GBP, which is back pressing 0.79 level again, an in commodity crosses like GBP/AUD and GBP/CAD are suggesting that further weakness is more likely in the pound than not. Looking ahead, UK nationwide house price is expected to drop another -0.3% mom in Mar, with yoy rate slowing further from 2.7% to 2.0%. Q4 GDP is expected to be unrevised at 0.6% qoq, 2.9% yoy. Current account deficit is expected to be at -18.3b.

Other data to be in focus today include Swiss KOF leading indicator is expected to drop from 1.65 to 1.58. From US personal income and spending is expected to climb 0.3% and 0.2% respectively in Feb. Core PCE is expected to be unchanged at 2.2% yoy.

A number of economic indicators were released from Japan overnight. National CPI climbed more than expected from 0.7% yoy to 1.0% yoy in Feb, highest in a decade. However, unemployment rated edged higher for the first time in five months from 3.8% to 3.9%. Household spending was unexpectedly flat yoy only. Retail sales dropped -1.0% mom only, leaving yoy rate at 3.1%. The data indicates that Japan, like US, is starting to face the problem of higher inflation and sluggish growth. Whether the Japanese economy will enter into a recession is still a question. But the data will continue to support the speculation that BoJ will cut rates from 0.5% this year to stimulate growth.

Also released overnight, New Zealand's GDP grew 1.0% qoq seasonally adjusted in the Q4 of 2007, significantly higher from the 0.5% qoq recorded in the Q3. Yoy rate was pushed higher to 3.7%. Nevertheless, Kiwi is just steadily in range against dollar after the data.

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GBP/USD Daily Outlook

Daily Pivots: (S1) 1.9998; (P) 2.0094; (R1) 2.0167; More

Cable's rebound form 1.9736 was limited at 2.0193 and subsequent break of 2.0034 minor support, with 4 hours MACD dragged below signal line, suggest that an intraday top is already in place. Outlook is turned neutral for the moment. On the downside, below 1.9924 support will firstly indicate that rise from 1.9736 has completed. Secondly, it will revive the case that such rise is just correction to fall from 2.0389. Further break of 1.9736 support will confirm this case. Also, in such case, it will revive the original case that consolidation from 1.9337 has already completed at 2.0389. In other words, deeper decline should be seen to retest 1.9337 low. Meanwhile, above 2.0193 will indicate that rise from 1.9376 is still in progress towards 2.0389 high.

In the bigger picture, as long as mentioned 61.8% retracement of 2.1161 to 1.9337 at 2.0464 holds, price actions from 1.9337 is still treated as consolidation to whole down trend from 2.1161 only. Break of 1.9360 will confirm that such decline has resumed for next target of 1.8565/8619 cluster support (100% projection of 2.1161 to 1.9337 from 2.0389 at 1.8565, 61.8% retracement of 1.7407 to 2.1161 at 1.8619). On the upside, as discussed before, decisive break of 2.0464 will dampen this view and encourage a retest of 2.1161 high.

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