Dollar Weakens After Soft Data, More Upside in Sterling

Dollar weakens after soft data from US. Meanwhile, Sterling continues to move higher after breaking 2004 high of 1.9554. Personal income growth remains steadily moderate, rising 0.4% in Oct, for the fifth consecutive increase of 0.4% or 0.l5%. However, spending’s remains week and increased 0.2% only. PCE deflator fell 0.2% due to falling energy price while Core PCE deflator increased 0.2% with yoy change at 2.4%. Chicago PMI unexpectedly dropped to 49.9 in Nov vs expectation of 54.3. However, Q3 house price index rose more than expected by 0.9%.

Earlier today, Sterling surges to new 14-year high after much stronger than expected house price inflation. But upside was initially limited after disappointing Gfk consumer confidence that deteriorated unexpectedly in November to -7.0 from -5.0. In particular,
the climate for major purchases dipped +1 from +6, lowest since November 2004. However, cable’s rally resumes in US session and more upside should be seen if cable can sustain above 1.9554 resistance.

From Eurozone, the European Commission released its growth forecasts alongside this morning’s GDP data. Even though Q3 GDP slowed from 0.9% to 0.5%, outlook remains upbeat. Growth is expected to accelerate to 0.6% in 1Q 07, raised from prior forecast of 0.3%. 2Q 07 growth is expected to be 0.6% too. On the other hand, inflation rose to 1.8% from 1.6% in November. The outlook is inline with ECB’s ‘vigilant’ stance.


Daily Pivots: (S1) 1.9418; (P) 1.9480; (R1) 1.9527;


Cable’s rally resumes again in US session by breaking above 100% projection of 1.8090 to 1.9142 from 1.8517 at 1.9569, reaching as high as 1.9628 so far. At this point, as long as cable stays above 1.9432 support, further rally is still expected to follow towards next upside target of 138.2% projection of 1.8090 to 1.9142 from 1.8517 at 1.9971.

On the downside, below 1.9432 support is needed to indicate correction has started and should bring pullback towards 4 hours 55 EMA (now at 1.9301). But downside should be contained above 1.9168 resistance turned support bring rally resumption.

In the bigger picture, rise from 1.8517 represents resumption of rally from 1.8090 as well as medium term up trend from 1.7047. Sustained trading above 1.9554 will add much credence to the case that multi-year up trend from 1.3680 has resumed. Meanwhile, on the downside, sustained break of 1.9168 support will be the first signal that current whole rise from 1.8517 has completed. But, break of 1.8834 or formation of medium term reversal pattern is needed to confirm.

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Shing-Ip Tsui is the founder and CEO of ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.