Daily Report: UK Retail Sales and Canada CPI in Focus

Sterling will be a main focus in European session today. The pound struggled to extend gains recently as interest rate expectation flip-flops. While markets are pricing in three hikes by next year, there are concerns that a premature hike would knock down the fragile economic recovery in UK. Nevertheless, inflation did double BoE's target in January and triggered BoE Sentance to step up his hawkish rhetoric. Sentance noted yesterday his " judgment is that the upside risks to inflation are understated," and "monetary policy would most likely need to be tightened fast and by more than the markets currently expect to bring the inflation back to target." Market's focus will be on retail sales data from UK, which is expected to show 0.5% rise in January.

Another major focus will be on Canada inflation. USD/CAD dropped to three year low yesterday and remains soft so far. Markets expect headline CPI to be unchanged at 2.4% yoy in January while core CPI should stay at 1.5% yoy. The Canadian dollar is supported by the country's strong fiscal position, expectation of the benefits from US recovery, as well as speculation of rate hikes in Q2. Loonie bulls are somewhat hesitating ahead of March 1 BoC meeting. But strong inflation reading today will most likely trigger another rally in the Canadian dollar.

The markets this week was rather directionless without a clear theme. Stocks and commodities are firm considering that DOW just closed at another high above 12318 yesterday while CRB commodity index also refused to dip through 335 level. On the other hand, there have also been strong safe haven flow to Swiss Franc on middle east turmoil. Dollar is a lost in both case as it's current as a relatively less attractive safe have currency comparing to Swissy.

Dollar index's close below near term trend line support affirms the case that recovery from 76.88 has completed with three waves up to 78.87, after failing 55 days EMA as well as 78.78 resistance. Bias is back to the downside and focus now turns to 77.50 minor support. Break will suggest that recent decline in the dollar index is likely resuming for another low below 76.88. 

EUR/GBP Daily Outlook

As noted before, a temporary bottom is in place at 0.8354 in EUR/GBP and intraday bias remains neutral. Nevertheless, another fall remains in favor as long as 0.8528 resistance holds and we'd still expect decline from 0.8671 to continue. Below 0.8354 will target 0.8284 support first. However, above 0.8528 will argue that fall from 0.8671 is completed and turn turn focus back to this resistance instead.

In the bigger picture, current development revives that case that rebound from 0.8067 has finished with three waves up to 0.8940 after hitting medium term trend line resistance. The development indicates that whole fall from 2008 high of 0.9799, which is treated a correction to the larger up trend, is not finished yet. Another low below 0.8067 could be seen ahead. Nevertheless, we'd continue to look for reversal signal inside 0.7693/8186 support zone.