Mid-Day Report: Sterling Rose on BoE Minutes, Dollar Lower ahead of Bernanke

Sterling soared today as BoE minutes revealed that the MPC voted unanimously by 9-0 to keep the asset purchase target unchanged at GBP 375b. During prior meeting, the ex-BoE governor King, and two other policy maker Fisher and Miles, voted for expansion of the asset purchase. But this time, Fish and Miles dropped such call. The minutes also noted that "given the already large size of the asset purchase program, there was merit in pursuing a mixed strategy with regards to the different policy instruments." And, "the committee's August response to the requirement in its remit to assess the merits of forward guidance and intermediate thresholds would shed light on both the quantum of additional stimulus required and the form it should take." Job data from UK was also Sterling supportive with claimant count dropped more than expected by -21.2k in June. The ILO unemployment rate was unchanged at 7.8%.

Released earlier today, minutes or BoJ's June 10-11 meeting noted that there were discussions on whether to take measures to calm recent bond market volatility. There were discussions about extending the maximum duration of fixed-rate funds offered via market operations from one year. Some policy makers noted that would restrain "excess interest rate fluctuations". However, some opposed as that might be misread by market as a change in the central bank's framework. After all, most members believed that markets will stabilize over time. Meanwhile, one member proposed to limit the duration of the monetary stimulus to around two years.

Other data released saw US housing starts dropped to 836k in June while building permits also dropped to 911k annualized rate. Canadian international securities transactions dropped to CAD 6.74b in May. Swiss ZEW expectations improved to 4.8 in July. Australia Westpac leading index rose 0.2% mom in May. China conference board leading indicator rose 1.0% in June.

Bernanke's testimony and BoC rate decision will be the next focus. Bernanke will testify to House today and Senate tomorrow. Dollar jumped sharply back in June on expectation that Fed will taper the stimulus program later this year and some speculated that it will start scaling back the asset purchase as soon as in September. However, Bernanke's dovish comments last week, which pledged that policy will stay accommodative as long as needed, raised some uncertainties over such speculations. The greenback than gave up much of recent gains since then. The keys are firstly when Fed will rally start reducing the USD 85b per month purchases, secondly in what way, and thirdly at what pace. If Bernanke just repeat his comments last week, we might seen some more weakness in the greenback in near term.

Also, much attention will be paid to BoC rate decision. That will be Stephen Poloz's first meeting as BoC governor. It's widely expected that the central bank will keep rates unchanged at 1.00%. At Carney's last meeting, the statement somewhat maintained tightening bias and noted that "considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required". A main focus is whether Poloz will drop the reference to withdrawal of stimulus.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5077; (P) 1.5122; (R1) 1.5201; More...

GBP/USD's break of 1.5221 suggests that rebound from 1.4813 has resumed. Intraday bias is back on the upside and stronger rise could be seen to 61.8% retracement of 1.5751 to 1.4813 at 1.5393 and above. But we'd expect strong resistance below 1.5751 to complete the rebound. Overall, we'd expect fall from 1.6380 to resume later. Below 1.5027 minor support will turn bias back to the downside for retesting 1.4813 first.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161 and could have completed as a triangle pattern at 1.6380. We're still preferring this view for the moment. Focus is on 1.4229 support and sustained break there should bring long term down trend resumption for a new low below 1.3503. However, strong rebound from or above 1.4229 will indicate that the whole pattern from 1.3503 is still in progress.

IMOH, Clement I.
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