Mid-Day Report: Yen Soldoff, Dollar Strikes Back, Sterling Hammered

Market Overview | Written by ActionForex.com | Aug 22 08 13:11 GMT |

The Japanese yen is sharply lower into early US session on speculation that Lehman Brothers could be acquired by a group of Korean Development bank. US stock futures jump sharply such such speculation and lure investors back to the stock markets. The Japanese yen is thus sold off sharply on return of risk appetite. Meanwhile, the greenback is also supported by retreat in oil prices and strikes back against majors currencies. Particular weakness is seen in Sterling which is hammered by unexpected downward revision in Q2 GDP to 0% qoq, 1.4% yoy growth.

Technically Speaking, yen crosses should have made a short term bottom and more upside is expected in EUR/JPY and GBP/JPY. Meanwhile, USD/JPY looks set to resume recent rise. Dollar's outlook is still rather mixed. The anticipated stronger rebound in EUR/USD, GBP/USD and AUD/USD didn't occur. And, it now seems that the greenback will have at least one more rise against sterling and aussie before forming a short term top.

Looking ahead, focus will turn to Bernanke's opening speech in Jackson Hole on financial stability. His audience include ECB Trichet and BoJ Nishimura. Note that this is Bernanke's first public appearance since the FOMC monetary policy meeting on Aug. 5.
GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.8660; (P) 1.8725; (R1) 1.8845; More

Cable's failure to stay above 1.8787 minor resistance and subsequent break of 1.8603 minor support argues that decline from 2.0150 is still in progress. Intraday bias is flipped back to the downside for 1.8151 and break will confirm such decline has resumed for 100% projection of 2.1161 to 1.9337 from 2.0158 at 1.8360. On the upside, though, above 1.8787 will confirm a short term bottom and bring stronger rebound to 38.2% retracement of 2.0150 to 1.8515 at 1.9140. Though, upside should be limited below 61.8% retracement at 1.9525 and bring fall resumption.

In the bigger picture, medium term fall from 2.1161 (07 high) is still in progress. The developments so far are arguing that whole multi year up trend from 1.3680 (01 low) has also completed too. Those developments include strong break of the long term trend line and 55 months EMA, bearish divergence conditions and trend breaking in monthly MACD and RSI.

Focus is now on cluster support at 1.8303/60 (100% projection of 2.1161 to 1.9337 from 2.0158 at 1.8360 and 38.2% retracement of 1.3680 to 2.1161 at 1.8303). Sustained break of which will indicate that whole decline from 2.1161 is probably impulsive in nature and add more credence to the case of long term reversal. This will pave the way to next key support at 1.7047 first. On the upside, while strong rebound might be seen, a break of 2.0158 resistance is still needed to indicate fall from 2.1161 has completed. Otherwise, another fall should still be seen after correction.

GMT   Ccy   Events                         Actual  Consensus  Previous  Revised
23:50  JPY  BOJ minutes Jul     
8:00  EUR  Eurozone Current account (euro) Jun  -1.0B   N/A  -21.4B     -19.6B
8:30  GBP  U.K. GDP Q/Q Q2 R                   0.00%  0.10%  0.20%  
8:30  GBP  U.K. GDP Y/Y Q2 R                   1.40%  1.50%  1.60%  
9:00  EUR  Eurozone Industrial orders M/M Jun  -0.30%  -1.10%  -3.50%     -5.40%
9:00  EUR  Eurozone Industrial orders Y/Y Jun  -7.40%  -6.30%  -4.40%  
14:00  USD  Fed's Bernanke Speaks on Financial Stability at Jackson Hole