Return to 50% retrace Could Create Long Opportunities in EURGBP

For the last week or so our charts have been bullish on the EURO/STERLING. The rally has been quite strong and may continue towards the 8800 area and beyond in the coming days. Longs could be taken while we are above the 8710 area. A break down through this level and we may see a fall back towards the lovely 50 percent retrace line we have been trading off lately. With the recent volatility in all pairs we haven't ruled out a return to that area at some point soon. If that did happen, it could create another chance to re-enter low risk longs again. 

Daily Report: Euro Mildly Higher on Franco-German Pledge

Euro opens the week mildly firmer after Germany and France pledged to provide sustainable solution to Greece situation and the European debt crisis, as well as bank recapitalization by the end of the month, before the G20 summit in Cannes. Meetings including European Council and EU finance ministers will be held to finalize the details of the proposal. France Sarkozy noted that they will "recapitalize the banks", in "complete agreement" with Germany and they will take a common position on all issues. Germany Merkel noted that there will be a "comprehensive package that will enable closer cooperation between euro zone countries" and that could include changes to the Lisbon treaty.

Moody's warned that it may cut Belgium's credit rating after the bailout of the French-Belgian Dexia. Belgium will buy the Belgian banking business of Dexia for 4B euro and provide the bulk of guarantees to cover leftover assets of the parent group. According to the agency, the country's Aa1 rating is currently under review due to materially increased funding costs for sovereigns and banks of countries with high debt, risks to economic growth and the weight on public finances of supporting the banking sector.

BoE Weale said that there "quantitative easing does support the economy" and there is "quite a lot of scope" for further easing. Weale noted that the current situation bears similarities to the 19030s and there is a "sharp deterioration" in UK's economic prospects and "the case for support has grown in the autumn as the financial situation has appeared to deteriorate." On the other hand, policy maker Sentance wrote on his blog that BoE's governor's statement last week is "potentially very misleading" as he didn't present a distinction between economic and financial crisis and that's "counterproductive" in maintaining confidence of the business community.

The economic calendar is light today with Japan, the US and Canada on public holiday. German trade surplus widened to EUR 13.8b in August. Eurozone Sentix Investor Confidence will be released later today.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 102.19; (P) 103.02; (R1) 103.51; 

With 101.65 minor support intact, EUR/JPY's recovery from 100.74 could extend further higher. But after all, we'd maintain that break of 104.92 resistance is needed to confirm short term bottoming. Otherwise, near term outlook will remain bearish and recent decline is still in favor to continue. Below 101.65 should flip bias back to the downside and end EUR/JPY through 100 psychological level towards 200% projection of 123.31 to 113.41 from 117.74 at 97.94. Though, break of 104.92 will confirm short term bottoming, on bullish convergence condition in 4 hours MACD and bring stronger rise to 106.98 and above.

In the bigger picture, whole down trend from 2008 high of 169.96 is still in progress and is building up downside momentum again. Sustained trading below 100 psychological level should pave the way to 100% projection of 139.21 to 105.42 from 123.31 at 89.52, which is close to 88.96 all time low. On the upside, break of 111.93 resistance is needed to be the first signal of medium term reversal. Otherwise, we'll stay bearish. 

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3318; (P) 1.3421 (R1) 1.3482; 

EUR/USD's recovery from 1.3145 extends further higher today and intraday bias remains mildly on the upside. But still, note again that break of 1.3689 resistance is needed to confirm short term bottoming. Otherwise, outlook will remain bearish. Below 1.3360 minor support will flip bias back to the downside and should send EUR/USD to 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level. However, break of 1.3689 will confirm short term bottoming, on bullish convergence condition in 4 hours MACD and should bring stronger rally to 1.3936 and above.

In the bigger picture, current development indicates that medium term rise from 1.1875 has completed with three waves up to 1.4939 already. That also suggests that it's merely part of the consolidation pattern that started back in 2008 at 1.6039. Further decline would now be seen to 1.2873 support first and break will target 1.1875 and below. On the upside, above 1.4548, resistance is needed to confirm completion of the fall from 1.4939 or we'll stay bearish in EUR/USD.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8554; (P) 0.8629; (R1) 0.8671; 

EUR/GBP rebounds stronger today and the development suggests that recent consolidation in the converging range is still in progress. Intraday bias is turned neutral. We'd expect some more choppy sideway trading but after all, outlook remains bearish as long as 0.8795 resistance holds and we'd expect an eventual downside break out through 0.8529 support. Nevertheless, break of 0.8795 will turn focus back to 0.8884 key resistance.

In the bigger picture, price actions from 0.9799 (2008) should be unfolding as a consolidation pattern in the long term up trend. The first leg is completed with three waves down to 0.8067. Second leg should also be finished at 0.9083. Fall from 0.9083 is treated as the third leg and should target 0.8067 first and possibly further to 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is closes to 0.8 psychological level). Nevertheless, we'd expect strong support from 0.7693/8186 support zone to contain downside to finish off the consolidation. On the upside, break of 0.8884 resistance is needed to invalidate this view or we'll stay bearish now.

Daily Report & Outlook : Forex Currency Pairs

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9171; (P) 0.9210; (R1) 0.9270; 

USD/CHF's break of 0.9261 resistance suggests that recent rally has resumed and intraday bias is back on the upside for 161.8% projection of 0.7065 to 0.8246 from 0.7710 at 0.9621 next. On the downside, below 0.9146 minor support will turn bias neutral and bring consolidations. But after all, break of 0.8917 is needed to confirm short term topping. Otherwise, outlook will remain bullish in near term.

In the bigger picture, medium term down trend from 1.1730 is already completed at 1.7065. But there is no indication of long term reversal yet. Rebound from 0.7065 is treated as part of a medium term consolidation pattern. Such rebound would possibly extend to 0.9916/1.1730 resistance zone. But strong resistance should be seen there and bring reversal. On the downside, break of 0.7710 is needed to indicate completion of the rebound from 0.7065. Otherwise, we'll stay near term bullish in the pair for the moment.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.3276; (P) 1.3329 (R1) 1.3399; 

EUR/USD's recovery from 1.3145 is still in progress and might extend further to 4 hours 55EMA (now at 1.3434) and above. But still, note that break of 1.3689 resistance is needed to signal short term bottoming. Otherwise, outlook will remain bearish. Below 1.3145 will target 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level.

In the bigger picture, current development indicates that medium term rise from 1.1875 has completed with three waves up to 1.4939 already. That also suggests that it's merely part of the consolidation pattern that started back in 2008 at 1.6039. Further decline would now be seen to 1.2873 support first and break will target 1.1875 and below. On the upside, above 1.4548, resistance is needed to confirm completion of the fall from 1.4939 or we'll stay bearish in EUR/USD.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8595; (P) 0.8622; (R1) 0.8656; 

EUR/GBP's recovery from 0.8529 might extend further as long as 0.8584 minor support holds. But upside should be limited below 0.8795 resistance and bring an eventual downside breakout. Below 0.8584 will turn bias back to the downside. Further break of 0.8529 support will confirm resumption of recent fall from 0.9083 and target 100% projection of 0.8884 to 0.8529 from 0.8795 at 0.8440 next.

In the bigger picture, price actions from 0.9799 (2008) should be unfolding as a consolidation pattern in the long term up trend. The first leg is completed with three waves down to 0.8067. Second leg should also be finished at 0.9083. Fall from 0.9083 is treated as the third leg and should now target 0.8067 first and possibly further to 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is closes to 0.8 psychological level). Nevertheless, we'd expect strong support from 0.7693/8186 support zone to contain downside to finish off the consolidation. On the upside, break of 0.8884 resistance is needed to invalidate this view or we'll stay bearish now.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9542; (P) 0.9603; (R1) 0.9719;

AUD/USD's rebound from 0.9387 extends further to as high as 0.9726 so far today The break of 0.9672 minor resistance affirms the case that a short term bottom is at least formed after drawing support from 0.9404 key medium term level, on bullish convergence condition in 4 hours MACD. Intraday bias remains on the upside and further rise should be seen to 0.9984 resistance next. Break will target upper channel resistance (now at 1.0478). On the downside, below 0.9621 minor support will turn bias neutral. But break of 0.9387 support is needed to confirm fall resumption. Otherwise, we'll now favor more rebound ahead in near term.

In the bigger picture, focus remains on 0.9404 key support level. As long as this support holds, price actions from 1.1079 is treated as a correction, or part of a consolidation pattern to the up trend from 0.6008 only. And, in such case, AUD/USD should still made another high above 1.1079 before forming an important top. However, sustained break of 0.9404 will indicate that rise from 0.6008 is already finished and would possibly bring deeper fall towards 61.8% retracement of 0.6006 to 1.1079 at 0.7945.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.0344; (P) 1.0458; (R1) 1.0519;  

USD/CAD's fall from 1.0656 extends further to as low as 1.0394 so far. The break of 1.0431 minor resistance indicates that a short term top is formed on bearish divergence condition in 4 hours MACD after missing 161.8% projection of 0.9406 to 1.0009 from 0.9725 at 1.0701. Intraday bias is mildly on the downside and deeper decline would be seen to 38.2% retracement of 0.9725 to 1.0656 at 1.0300 and possibly below. But we'd expect strong support from 50% retracement at 1.0191 to contain downside and bring rebound. More consolidations would be seen below 1.0656 would be seen before rally from 0.9406 resumes towards 1.0803 medium term fibonacci level.

In the bigger picture, sustained trading above 55 weeks EMA affirms the case that whole down trend from 2009 high of 1.3063 has finished at 0.9406 on bullish convergence condition in weekly. Current rally from 0.9406 should now target 1.0851 resistance (38.2% retracement of 1.3063 to 0.9406 at 1.0803). Break there will extend the rebound to 61.8% retracement 1.1666 and above. On the downside, break of 1.0009 support is needed indicate completion of the rally from 0.9406. Otherwise, we'll stay bullish in USD/CAD. 

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.5406; (P) 1.5449; (R1) 1.5505;  

GBP/USD is staying in tight range above 1.5340 temporary low and intraday bias remains neutral. Consolidation from 1.5327 might still be in progress and stronger recovery cannot be ruled out. But even in that case, upside should be limited by 38.2% retracement of 1.6618 to 1.5327 at 1.5820 and bring fall resumption eventually. On the downside,, decisive break of 1.5327 will confirm resumption of recent fall from 1.6746 and should target 161.8% projection of 1.6746 to 1.5780 from 1.6618 at 1.5055 next

In the bigger picture, rise from 1.4229, which is treated as the third leg of consolidation from 1.3503 (2008 low) should be finished at 1.6746 after GBP/USD completed a head and shoulder top reversal pattern (ls: 1.6298, h: 1.6746, rs: 1.6618). Fall from 1.6746 could be the fourth leg of the consolidation pattern from 1.3503 (2008 low) or resuming long term down trend from 2.1161 (2007 high). In either case, retest of 1.4229 resistance should be seen. Break of 1.4229 will bolster the down trend resumption case and would possibly push GBP/USD through 1.3503 low. On the upside, break of 1.6618 resistance is needed to invalidate this view. Or we'll now stay cautiously bearish in GBP/USD.

Risk Aversion Continues on Greek Default Worry, Troika Conference Call Watched

Selloff in risk asset continues in early US session as concern on Greek default remains the focus of the markets. DOW opens sharply lower and is down over -200pts at the time of writing while major European indices are deep in red, with FTSE down -2.4%, DAX down -3.6% and CAC down -2.9%. US 10 year yield dives below 2% again. Dollar benefits from risk aversion with dollar index jumping sharply to 77.51 so far and is set to take on recent high of 77.78.

Main focus will now turn to the result of a conference call between troika and Greek officials last today to review Greece's progress in meeting the requirements for the next tranche of bailout fund of EUR 8b and the second bailout that worth EUR 109b. IMF and EU experts paused their review on Greece's progress earlier this month after discovering an unexpected hold in the budget. If Greece could not commit to speed up the deficit reduction measures, it might be left with not change but a default as the government wouldn't have enough cash to make it past mid-October. And markets are deeply concerned with the possibility of a disorderly default of Greece.

US President Obama will announce a $1.5T tax proposal today including around $800b realized over 10 years from repealing Bush-era tax cuts for couples making more than $250k. In addition, there will be $580b in cuts in mandatory benefits program including Medicare, Medicaid and farm subsidies. Also, there will be $430b in savings from lower interest payments on national debt. And, there will be around $1T savings from the withdrawal of troops from Iraq and Afghanistan.

On the data front, US NAHB home builder sentiment index dipped to 1 point to 14 from 15 in September, below expectation of 15. The gauge of sales expectations in the next six months slipped to 17 from 19. UK rightmove house prices rose 0.7% mom in September. New Zealand consumer confidence was unchanged 112 in Q3.

Dollar index's sharp rise today suggests that retreat from 77.784 is already finished at 76.06 and recent rise from 73.42 is resuming. Bias is back on the upside and break of 77.784 will confirm this bullish case and should send the index towards 38.2% retracement of 88.70 to 72.69 at 78.80. As mentioned before, the whole fall from 88.70 might have completed at 72.69 already and a break above mentioned 78.78 fibo level will pave the way for a test on 80 psychological level a weeks ahead.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8702; (P) 0.8745; (R1) 0.8779; 

The break of 0.8686 minor support suggests that EUR/GBP's recovery from 0.8529 is already completed at 0.8790. While such rebound was a bit stronger than expected, there is no change in the bearish outlook with 0.8884 resistance intact. Intraday bias is flipped back to the downside for retesting 0.8529 first. Break will resume the whole decline from 0.9083. On the upside, above 0.8790 will flip bias back to the upside and turn focus to 0.8884 again.

In the bigger picture, price actions from 0.9799 (2008) should be unfolding as a consolidation pattern in the long term up trend. The first leg is completed with three waves down to 0.8067. Second leg should also be finished at 0.9083. Fall from 0.9083 is treated as the third leg and should now target 0.8067 first and possibly further to 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is closes to 0.8 psychological level). Nevertheless, we'd expect strong support from 0.7693/8186 support zone to contain downside to finish off the consolidation. On the upside, break of 0.8884 resistance is needed to invalidate this view or we'll stay bearish now.

Daily Report: Sentiments Stabilized Temporarily as Italy Seeks China Buying

Markets sentiments stabilized a bit over night on talks that Italy, after having a poor bill auctions yesterday, was soliciting China for buying the country's debts. It's reported that Finance Minister Giulio Tremonti met with China Investment Corp sovereign fund's chairman on the possibly of purchase by the fund. A number of Chinese officials are believed to be involved in the conversation, including those from China's ambassador and the State Administration of Foreign Exchange. It's believed that around 4% of Italy's EUR 1.9T of debt is being held by China for the moment even though the exact amount is unclear. EUR/USD turned into range trading after breaching 1.35 level briefly yesterday. Meanwhile, global equities recovered mildly, following late rebound in US stocks. Italy will be selling as much as EUR 7b of bonds today including EUR 4b of a new benchmark 5-year bond The country as completed around 70% of its debt financing this year and is looking at selling another EUR 70b of bonds for the rest of the year to cover its budget deficit and other redemptions.

But after all, sentiments remain vulnerable as all eyes and all minds are still on the Greece situation. Default risks of Greece, as implied by 5 years CDS, reached as high as 98% while yield on 2 year-notes jumped above 70%. Fear of contagion also sent CDS on some eurozone countries to record high, including Portugal, Italy and even France. In the medium term, concerns of impact of austerity measures on Eurozone economy is also weighing on sentiments. ECB Trichet tried to comfort markets by saying that "we don't see a recession, not at all, but we see a slowing down in comparison with what has been observed." Also, Trichet pleased to provide "liquidity to banks as required". But there was clearly not much reaction to his comments.

On the data front, Australia NAB business confidence dropped sharply to -8 in August. NAB said that the result reflects "heightened global uncertainty, large falls in equity markets and the fear of debt market contagion." Though, "confidence levels remain significantly above global financial crisis or recessionary lows." UK RICS house price balanced dropped to -23 in August. RICS said that the indicators suggested "demand for homes remain broadly steady, albeit at relatively low levels, despite the renewed bout of economic gloom", but "the risk is that the worsening economic picture will gradually begin to have a more material impact on sentiment and discourage potential house purchasers".

Looking ahead, UK CPI will be a main focus in European session. Headline CPI is expected to climb to 4.5% yoy in August with core CPI slightly down to 3.0%. UK Chancellor Osborne said over the weekend that he saw no barriers to a second round of quantitative easing from BoE. But the bank might still opt to see CPI really peaks first before acting. Other data to watch today include US import price index and Fed budget statement.

AUD/JPY is so far one of the weakest pair this week, obviously on risk aversion. The development confirmed that corrective rebound from 76.50 has finished at 82.80 already after failing to sustain above 55 days EAM on multiple attempt. Near term outlook is now cautiously bearish for a retest on 76.50. Break will resume whole fall from 90.01 towards 74.02 support and below. A break of 80.61 resistance is needed to invalidate this case or we'll stay bearish even in case of recovery. 

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8555; (P) 0.8596; (R1) 0.8664; 

EUR/GBP recovers mildly after dipping to 0.8529. Touching of 0.8632 minor resistance, with 4 hours MACD crossed above signal line, suggests that a temporary low is formed and intraday bias is turned neutral for some consolidations. But recovery is expected to be limited below 0.8732 support turned resistance and bring fall resumption. Below 0.8652 will extend the whole decline from 0.9083 to 100% projection of 0.9083 to 0.8642 from 0.8884 at 0.8443 next.

In the bigger picture, price actions from 0.9799 (2008) should be unfolding as a consolidation pattern in the long term up trend. The first leg is completed with three waves down to 0.8067. Second leg should also be finished at 0.9083. Fall from 0.9083 is treated as the third leg and should now target 0.8067 first and possibly further to 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is closes to 0.8 psychological level). Nevertheless, we'd expect strong support from 0.7693/8186 support zone to contain downside to finish off the consolidation. On the upside, break of 0.8884 resistance is needed to invalidate this view or we'll stay bearish now.

Weekly Review and Outlook Risk Recovery Finished, Revisiting Recent Lows ahead of Jackson Hole?

The recovery in market sentiments was rather short-lived as risk selloffs resumed towards the end of the last week. Disappointment from the Franco-German summit turned market around and there was renewed worry on interbank liquidity stress. Global economic data continued to disappoint and point to further slowdown while investment banks such as Citigroup and JP Morgan downgraded their forecasts on US growth while Morgan Stanley trimmed its global growth outlook, warning the US and Europe are 'dangerously close to recession'. Major equity indices stumbled on Thursday and Friday while gold made another record high at 1881.4 and is marching towards 1900. The currency markets, though, were relatively calm. Commodity currencies were generally low but loss was so far limited. Swiss Franc is relatively indifferent to risk aversion on concern of intervention from SNB. Yen was higher but momentum as unconvincing. Surprisingly, Sterling was the strongest currency last week on safe haven flows. At this point, it looks like there will be another around of risk selloffs to push equities to new yearly low ahead of the highly anticipated Jackson Hole symposium.

The Franco-German meeting failed to come up with solutions to settle the debt crisis. Leaders of biggest economies in the 17-nation region proposed to create a 'true European economic government' which will eventually lead to a common tax and fiscal policies within the Eurozone. Concerning fiscal issues, Germany and France will create a common corporate tax base and tax rate between the 2 countries from the start of 2013. Moreover, they will propose in September the imposition of a new financial transaction tax across all Eurozone members. While the details of the types of taxes were not provided, investors were obviously irritated by the financial transactions tax as the euro and equities plunged after the announcement.

The ECB said that it has recently lent US$ 500M in its 7-day liquidity-providing operation to a bank at above market rates. This was the first time since February that the facility was used. Fears that more banks will seek ECB's funding because of their heavy exposure to debts of Greece and other debt-ridden countries increased and would make the market outlook negative. Concerns over contagion of Eurozone's sovereign crisis have spread to the US. The WSJ said that US regulators are taking a closer look at the US units of Europe's biggest amid concerns that the region's debt problems will spread to the US banking system. The report said that the New York Fed is 'very concerned' about the issue and has been seeking information about the banks' ability to access funds to maintain their US operations. New York Fed President Dudley denied the officials are watching a particular group of banks closely and reiterated that the central bank treats US and European banks 'exactly the same' and is 'always scrutinizing banks'.

Sterling was somewhat supported by safe haven flows into UK government debts even though the economy remains weak and chance of more easing from BoE is high. Yield also sank after minutes revealed that MPC members Dale and Weale abandoned the call to hike rates in last meeting.  UK 10 year gilt yield dived to record low of 2.273% on Thursday before closing the week at 2.39%. Safe haven flows pushed EUR/GBP to as low as 0.8653 last week but the rebound on Friday suggests that investors are not ready to get themselves more committed to the pound yet and the cross will remain mixed in near term.

Selloff in stocks was steep on Thursday and Friday, where we have DOW down from intraday week high of 11529 to close at 10817. DOW, S&P 500, NASDAQ, FTSE 100 and CAC 40 managed to hold above recent low. However, note that DAX has indeed dived through prior week's low of 5487 and closed at 5480. The German index could be leading the way down as other major global indices extend the fall to test recent lows this week. 

Sentiments somewhat stabilized briefly on news that Olli Rehn, the European Union commissioner for economic and monetary affair said that EU may present a report to European Parliament and the Council on the setup of a "system of common issuance of European sovereign bonds" under joint and several liability". However, the idea of Eurobond will face strong opposition just as European Union President Herman Van Rompuy expressed that there will be Eurobonds only when there is " genuine budgetary convergence, the day when everyone is in balance or virtually in balance."

Technical Highlights

DOW's recovery from 10604 might have completed at 11529 last week, ahead of mentioned 11862 resistance as expected. It's a bit early to confirm fall resumption for the moment, but the index is nonetheless vulnerable to deeper fall ahead. We'll stay cautiously bearish as long as 11529 resistance holds and expect an eventual downside breakout soon towards 61.8% projection of 12753 to 10604 from 11529 at 10201 in near term. As noted before, the index has completed a head and shoulder top reversal pattern earlier and the current fall should eventually target key cluster level of 9614 (50% retracement of 6470 to 12876 at 9673) and below. 

While gold made another record high against dollar at 1881.4 last week, it's also exceptionally strong against other major currencies. XAU/EUR jumped to new record high at 1312.92 last week before retreating back below 1300 psychological level to close at 1286.23. Near term outlook will remain bullish in any case as long as 1201.96 support holds and we'd expect further rise towards 261.8% projection of 954.11 to 1088.1 from 1021.21 at 1371.97 next.

The dollar index continued to stay in familiar range as recent consolidation continued, just like the EUR/USD. At this point, a downside break out is mildly in favor as long as 75.383 resistance holds. Break of 71.48 will target 72.69 first. Further break there will confirm resumption of the whole down trend from 2008 high of 88.70 and should target historical low of 70.70. On the upside, above 75.38 will turn focus back to 76.71. resistance but break there is still needed to signal trend reversal. Or, we'll stay neutral at best in the index.

The Week Ahead

A number of important economic indicators will be released this week, including Eurozone PMIs, German ZEW and Ifo, US and UK GDP revision. Nevertheless, main focus will definitely be on the Jackson Hole symposium. After the Fed announced to keep interest rates at exceptionally low levels at least through mid-2013 on August 9, the market has been increasingly speculating that Chairman Ben Bernanke will signal additional easing measures at the meeting next week. According to a CNBC survey done after the FOMC meeting, 46% of respondents said the Fed will resume QE, up from 19% in the July survey while 37% said the Fed will not do QE, down from 68% in July. Also, of those who believe the Fed will resume QE, the asset purchases are expected to average at 628B, up from 377B in July.

• Tuesday: Eurozone Flash PMIs, German ZEW; Canada retail sales; US new home sales; New Zealand trade balance
• Wednesday: German Ifo; US durable goods; New Zealand retail sales
• Thursday: German Gfk consumer sentiment; Swiss ZEW; US jobless claims
• Friday: Japan CPI; UK GDP revision; Swiss KOF; US GDP revision

EUR/GBP Weekly Outlook

Despite dipping to as low as 0.8653 last week, EUR/GBP held above 0.8642 support and recovered strongly before closing. The development suggests that recent sideway trading is not finished yet and we'll continue to stay neutral. on the upside, above 0.8886 will re-affirm the case that fall from 0.9083 has completed at 0.8642 and should bring stronger rise to retest 0.9083. On the downside, however, break of 0.8610/42 support zone will has medium term bearish implication and should bring deeper fall to 0.8284/8355 support zone first.

In the bigger picture, price actions from 0.9799 (2008) should be unfolding as a consolidation pattern in the long term up trend. The first leg is completed with three waves down to 0.8067. At this point, EUR/GBP is still holding above 0.8610 support with daily MACD staying above signal line. Thus, there is no confirmation of completion of the second leg from 0.8067. Though, even in case of another rise, we'd expect strong resistance ahead of 0.9410 medium term resistance to bring reversal and starts the third leg. On the downside, break of 0.8610/42 support will now be an important bearish signal for 0.8067 and below.

In the long term picture, long term up trend from 2000 low of 0.5680 shouldn't be over yet and the choppy fall from 2008 high of 0.9799 should be a correction only. We'd expect such correction to be contained by 0.7963/0.8186 support zone and bring up trend resumption. Rise from 0.5680 is still expected to extend beyond 0.9799 high eventually.

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.