Mid-Day Report: Sterling Recovers after BoE Minutes, But Stays Bearish

Sterling recovers in general today as BoE meeting minutes showed two policy makers voted for rate hike in August MPC meeting. Nonetheless, the recovery in the pound is so far rather weak. GBP/USD and GBP/JPY are held below near term resistance of 1.6737 and 172.57 respectively. EUR/GBP is also held above near term support of 0.7920. Overall, outlook in sterling remains bearish. Elsewhere, dollar extends recent rally as markets await FOMC minutes to be released later in US afternoon. In particular, EUR/USD takes out 1.33 handle with today’s decline. USD/CHF also finally catches up and breaks recent resistance of 0.9114.

Surprisingly, two MPC members voted for raising the BOE’s Bank rate to 0.75% from 0.5% earlier this month, the minutes for the August meeting showed. The dissents, Martin Weale and Ian McCafferty, indicated that ‘economic circumstances were sufficient to justify an immediate rise in Bank Rate’. They were not concerned that rate hike would undermine the economic recovery. Rather, they believed that an early rise could help the central bank keep future increases smooth and gradual. The more hawkish minutes have raised speculations of a rate hike in the UK by the end of this year. More in BOE Split, Two Members Opted to Hike Rate in August.

On the data front, Canada wholesale sales rose 0.6% mom in June. UK CBI trends total orders rose sharply to 11 in August versus expectation of 4. German PPI dropped -0.1% mom, -0.8% yoy in July. Japan trade deficit widened to JPY -1.02T in July, all industry index dropped -0.4% mom in June. Australia Westpac leading index dropped -0.1% mom in July.

Looking ahead, the FOMC minutes are expected to struck a slightly more hawkish tone as Fed would be starting to prepare for rate hike next year. FOMC members would likely express some optimism that US is getting closer to full employment and price stability. But it’s unlikely for the minutes to contain more messages, including update of the exit strategies etc. The more important event for dollar for the week would likely be the annual event of the Jackson Hole symposium beginning on Thursday. With the theme ‘Reevaluating Labor Market Dynamics’, we look forward in this year’s conference to the Fed’s latest view on US labor market slack as well as Fed Chair Janet Yellen’s keynote speech on Friday.

Daily Pivots: (S1) 0.9036; (P) 0.9052; (R1) 0.9081; More….

USD/CHF’s break of 0.9114 resistance indicates that recent rebound from 0.8702 has resumed. Intraday bias is back on the upside for 0.9156 key resistance next. Decisive break there will carry larger bullish implications. On the downside, break of 0.9022 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, price actions from 0.9971 are viewed as a correction pattern. The break above 55 week EMA argues that it might be finished at 0.8698 already. Focus is back on 0.9156 resistance. Decisive break there should confirm this case and turn outlook bullish for a test on 0.9971 high. Meanwhile, break of 0.8855 near term support will dampen this bullish view and would extend the correction to 50% retracement of 0.7065 to 0.9971 at 0.8518 and below. In that case, we’ll start to look for reversal signal below 0.8518 again.

USD/CHF 4 Hours Chart

USD/CHF Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:50
JPY
Trade Balance (JPY) Jul
-1.02T
-0.77T
-1.08T
-1.07T
00:30
AUD
Westpac Leading Index M/M Jul
-0.10%

0.10%

04:30
JPY
All Industry Activity Index M/M Jun
-0.40%
-0.20%
0.60%

06:00
EUR
German PPI M/M Jul
-0.10%
0.10%
0.00%

06:00
EUR
German PPI Y/Y Jul
-0.80%

-0.70%

08:30
GBP
MPC Official Bank Rate Votes
2–0–7
0–0–9
0–0–9

08:30
GBP
MPC Asset Purchase Facility Votes
0–0–9
0–0–9
0–0–9

10:00
GBP
CBI Trends Total Orders Aug
11
4
2

12:30
CAD
Wholesale Sales M/M Jun
0.60%
1.30%
2.20%

14:30
USD
Crude Oil Inventories

1.4M

18:00
USD
FOMC Minutes

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