Dollar Firm After Strong GDP Growth

Dollar remains firm in early US session after stronger than expected Q4 GDP report that showed the US economy grew faster than expected by 3.5%, up from 2.0% in Q3. This was well above consensus expectation of 2.9%. The improvements was mainly due to strong consumption, exports and governments spending that offset the negative contributions from housing and inventories. Though, price index and core PCE both increased slower than expected, suggesting moderation of inflation is still on the right track. Nevertheless, the strong GDP report is raising the expectation that FOMC will deliver an upbeat statement later today.

Fed is widely expected to keep its target rate unchanged at 5.25% today. Once again the focus will be on the accompanying statement. There were three major developments since last meeting in Dec. Economic indicators has be resilient and showed that the US economy grew near potential in the fourth quarter. Inflation eased moderately but the pace certainly slow. More importantly, Fed members has shifted to a more hawkish stance in their speeches, saying that growth outside housing sector remains firm and inflation pressure may moderate slower than they would like to see. Hence, the statement’s wordings on inflation is not expected to change but the wordings about “recent indicators have been mixed” could be modified to reflect the current growth outlook, leaving the statement a slightly more hawkish statement than the prior one. Chicago PMI and Construction spending will be featured before FOMC announcement.

The Swiss Franc was lifted briefly after better than expected Swiss KOF leading indicate which came with a reading of 1.71 versus expectation of 1.56. However, that didn’t change that fact that this leading indicate has now had a seventh straight decline in a row since prior month’s reading was revised up from 1.60 to 1.75.

UK Gfk consumer confidence also came in slightly better than expected at -7 versus expectation of -9. This suggested that consumer confidence improved mildly in Jan. However, the rise was largely owing to a sharp upswing in the climate for major purchases sub-index, which rose from -4 in December to 10 in January. However, expectation for the next 12 months did drop from 11 to 9 with Future saving intentions rising from 28 to 34. Present financial situation also deteriorated from -1 to -3.

Data from Eurozone were mixed today, with better than expected retails sales and unemployment in Germany. However, sentiments in Europe generally weakened in Jan with Economic Sentiment Index dropping from 109.8 to 109.2. Sub-indices all dropped except Services confidence. Meanwhile, HICP inflation came in at 1.9%, missing consensus of 2.1%.


Daily Pivots: (S1) 1.9583; (P) 1.9638; (R1) 1.9682;


Cable’s recovery from 1.9545 was limited at 1.9695 and falls sharply today, reaching as low as 1.9480 so far, pressing mentioned rising trend line support (1.8517 to 1.8834, now at 1.9480) now. Break of 1.9545 low indicates fall from 1.9913 has resumed. At this point, Further decline is expected to follow as long as cable stays below 1.9556 resistance.

As discussed before, sustained break of the trend line support will confirm that whole rise from 1.8517 has completed at 1.9913 and deeper decline is expected to follow towards 1.9237/61 cluster support (23.6% retracement of 1.7047 to 1.9913 at 1.9237).

On the upside, above 1.9556 will turn intraday outlook consolidative but a strong rebound to above 1.9695 resistance is needed to shift focus back to the upside. Otherwise, further decline is still expected to follow.

In the bigger picture, we already have bearish divergence conditions in weekly RSI, daily MACD and RSI. Sustained break of 1.9588 cluster support is a warning that whole rise from 1.8517 has completed earlier than we thought. Break of mentioned rising trend line support will confirm such case. Decisive break of 1.9237/61 cluster support will add much weight to the case that whole medium term up trend from 1.7047 has already completed and much deeper decline should be seen towards next cluster support at 1.8834 (38.2% retracement of 1.7047 to 1.9913 at 1.8818).

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