Mid-Day Report

Dollar Rebounds, Maintain Gains as PPI Beat Expectation

Typography

Dollar rebounds broadly today and maintain gains after stronger than expected inflation data. Headline PPI rose 0.3% mom and 2.2% yoy in February, comparing to prior month's 0.6% mom and 1.6% yoy, above consensus of 0.1% mom and 2.0% yoy. Core CPI rose 0.3% mom, 1.5% yoy, up from 0.4% mom and 1.2% yoy, versus consensus of 0.2% mom, 1.5% yoy. In particular, GBP/USD drops through 1.2133 support as Sterling is sold off broadly on news on Brexit and revival of Scexit. Meanwhile, Yen is trading as the strongest major currency with buying interest seen ahead of BoJ meeting.

FOMC to meeting despite snow storm

Markets are keenly awaiting FOMC rate decision tomorrow. In spite of snow storm hobbling much of northeast, Fed will l start it's two-day meeting today as scheduled. Fed will announce decision at 1800 GMT tomorrow together with new economist projections. Fed chair Janet Yellen will hold a press conference at 1830 GMT. It's widely expected that Fed will hike interest rate by 25bps. And it's likely that Fed will sound more upbeat in the statement and the press conference. The point of interests will be on economic projections and in particular the median "dot plot" rate path. Back in December, Fed projected interest rate to hit 1.4% by the end of 2017 and 2.1% by end of 2018. Upward revision in these two figures would fuel rally in Dollar.

Germany economic sentiment improved in March.

German ZEW economic sentiment rose to 12.8 in March, up from 10.4 and beat expectation of 12.0. Current situation gauge rose to 77.3, up fro 76.4, but missed expectation of 78.0. Eurozone ZEW economic sentiment also rose to 25.6, up from 17.1, and beat expectation of 19.3. ZEW President Achim Wambach said that "the fact that the ZEW indicator of economic sentiment only shows a slight upward movement is a reflection of the current uncertainty surrounding future economic development. Meanwhile, "with regard to the economic situation in Germany, no clear conclusion can be drawn from the most recent economic signals."

Also from Eurozone, German CPI was finalized at 0.6% mom, 2.2% yoy in February. Eurozone industrial production rose 0.9% mom in January.

Sterling pressured by news of double divorce

In UK, the Parliament passed the bill allowing Prime Minister Theresa May to trigger Article 50 for Brexit negotiation." May will address the House of Commons today. Some expect May to wait until the end of the month to trigger Brexit. But there are speculations that May could announce it this week. Scottish First Minister Nicola Sturgeon confirmed that she would ask for permission to hold a second independence referendum.

China data beat expectations, except retail sales

China has released just now that industrial production expanded 6.3% yoy in the first two months of the year, up from consensus of 6.1% and December's 6%. Urban fixed asset investment (FAI) grew 8.9% yoy during the period, beating consensus of 8.3% and 8.1% previously. However, the growth of retail sales moderated to 9.5% yoy, from 10.4% in December. The market had anticipated stronger growth of 10.6%.

Retail drags down Australia business confidence

Australia NAB business confidence dropped to 7 in February, down from 10. Meanwhile, business conditions dropped to 9, down from 16. NAB chief economist Alan Oster noted that "big service industries drive the moderation in business conditions this month, but even after pulling-back a little, these industries continue to lead the non-mining recovery." Meanwhile, "it is hard to look past the disappointing results from retail, especially given the importance of consumption to the growth outlook."

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2159; (P) 1.2205; (R1) 1.2263; More...

GBP/USD's break of 1.2133 temporary low suggests that fall from 1.2705 has resumed. Intraday bias is back on the downside for retesting 1.1946/86 support zone. As noted before, consolidation pattern from 1.1946 is completed at 1.2705 is resuming larger down trend. Break of 1.1946 will confirm our bearish view. On the upside, above 1.2250 minor resistance will turn bias neutral again. But outlook will stay bearish as long as 1.2346 support turned resistance holds.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
00:30 AUD NAB Business Confidence Feb 7 10
02:00 CNY Industrial Production YTD Y/Y Feb 6.30% 6.10% 6.00%
02:00 CNY Fixed Assets Ex Rural YTD Y/Y Feb 8.90% 8.30% 8.10%
02:00 CNY Retail Sales YTD Y/Y Feb 9.50% 10.60% 10.40%
07:00 EUR German CPI M/M Feb F 0.60% 0.60% 0.60%
07:00 EUR German CPI Y/Y Feb F 2.20% 2.20% 2.20%
10:00 EUR Eurozone Industrial Production M/M Jan 0.90% 1.20% -1.60% -1.20%
10:00 EUR German ZEW (Economic Sentiment) Mar 12.8 12 10.4
10:00 EUR German ZEW (Current Situation) Mar 77.3 78 76.4
10:00 EUR Eurozone ZEW (Economic Sentiment) Mar 25.6 19.3 17.1
12:30 USD PPI M/M Feb 0.30% 0.10% 0.60%
12:30 USD PPI Y/Y Feb 2.20% 2.00% 1.60%
12:30 USD PPI Core M/M Feb 0.30% 0.20% 0.40%
12:30 USD PPI Core Y/Y Feb 1.50% 1.50% 1.20%