Market Overview | Written by ActionForex.com | Aug 23 08 22:30 GMT |

Top 5	Current	Last	Change (Pips)	Change (%)
GBPCAD	1.9392	1.9759	-367	-1.89%
EURGBP	0.7983	0.7871	+112	+1.40%
USDCAD	1.0468	1.0590	-122	-1.17%
AUDCAD	0.9068	0.9172	-104	-1.15%
GBPJPY	203.89	206.13	-224	-1.10%
Dollar
EURUSD	1.4791	1.4687	+104	+0.70%
USDJPY	110.07	110.48	-41	-0.37%
GBPUSD	1.8523	1.8655	-132	-0.71%
USDCHF	1.0984	1.0958	+26	+0.24%
USDCAD	1.0468	1.0590	-122	-1.17%
Euro
EURUSD	1.4791	1.4687	+104	+0.70%
EURGBP	0.7983	0.7871	+112	+1.40%
EURCHF	1.6249	1.6097	+152	+0.94%
EURJPY	162.82	162.28	+54	+0.33%
EURCAD	1.5484	1.5555	-71	-0.46%
Yen
USDJPY	110.07	110.48	-41	-0.37%
EURJPY	162.82	162.28	+54	+0.33%
GBPJPY	203.89	206.13	-224	-1.10%
AUDJPY	95.34	95.69	-35	-0.37%
NZDJPY	78.01	78.00	+1	+0.01%
Sterling
GBPUSD	1.8523	1.8655	-132	-0.71%
EURGBP	0.7983	0.7871	+112	+1.40%
GBPCHF	2.0347	2.0445	-98	-0.48%
GBPJPY	203.89	206.13	-224	-1.10%
GBPCAD	1.9392	1.9759	-367	-1.89%

One of the key focuses in the Forex market last week was whether the dollar has topped out in short term. However, the rebound in most major pairs, including EUR/USD, GBP/USD and AUD/USD were disappointing. Oil staged a strong rebound from last week's low of 111.66 to as high as 122.04. But, the sharp fall in oil prices on Friday, back to below 115 level, as well as weakness in GBP/USD and AUD/USD are arguing that the pull back in dollar might have completed before it really began.

In addition, the high volatility in the Japanese yen, following flip-flop of investor's sentiments, are making the overall forex markets quite mixed. Though, some clear weakness was seen in Sterling, in particular after disappointing GDP revision in UK that showed the economy stalled in the second quarter. Canadian dollar enjoyed an extension in the rebound last week and outperformed most currencies, especially against Sterling. It will be interested to see if GBP/CAD will be the top mover (loser) for the third consecutive week this week.

Currency Heat Map Weekly View

	USD	EUR	JPY	GBP	CHF	CAD	AUD
USD
EUR
JPY
GBP

In the opening speech at the annual symposium at Jackson Hole Wyoming, Bernanke said that recent fall in commodity prices and rebound in dollar were "encouraging". He reiterated that slowing growth should "lead inflation to moderate later this year and next year" even though the outlook remains "highly uncertain".

Headline PPI growth doubled markets forecasts by 1.2% mom in Jul, pushing yoy rate to 27 years high of 9.8% yoy in Jul. Core PPI jumped 0.7% mom versus expectation of 0.2%, pushing yoy rate much more than expected to 3.5%.

Housing starts dropped -11.0% to 0.96M annualized rate in Jul, inline with expectation. Meanwhile,building permits dropped much more than expected by -17.7% to 0.94M annualized rate. NAHB housing market sentiment was unchanged at 16 in Aug.

Leading indicators dropped much more than expected by -0.7% in Jul. Philly Fed survey improved more than expected to -12.7 in Aug. Jobless claims improved to 432k.

ZEW economic sentiment in Germany and Eurozone surprised the markets on the upside by improving much more than expected to -55.5 and -55.7 in Aug respectively. However, the positive effect was undone by sharp deterioration in the current situation indicator, from 17 to -9.2 in Germany and -3.3 to -22.2 in Eurozone. Manufacturing PMI and Services PMI both stayed below 50 in Aug, at 47.5 and 48.2 respectively. Though, there was sharp deterioration in Germany manufacturing to 49.9 and services PMI to 50.6. Eurozone trade balance unexpectedly showed 0.1b deficit in Jun. Industrial orders dropped -0.3% mom, -7.1% yoy in Jun. German PPI accelerated to 27 year high of 8.9% yoy in Jul.

BoE minutes showed the Aug's decision to keep rates unchanged at 5.00% was done by the same vote split as in Jul. Seven members voted for keep rates on hold, Tim Besley voted for a "pre-emptive" hike to anchor inflation. David Blanchflower voted for a cut after the bank cut growth forecasts.

Data in UK were generally disappointing. Most importantly, Q2 GDP was revised lower to 0.0% Q2, 1.4% yoy. Rightmove house price index showed average asking price of houses fell -4.8% yoy in Aug, largest decline since at least 2002. CBI industrial trend orders which dropped to -13 in Aug, hitting the lowest level since Oct 2006. Though, retail sales unexpectedly rebound by 0.8% mom in Jul with yoy rate dropped slightly to 2.1% yoy.

Swiss ZEW index dropped from -76.90 to -79.6 in Aug. Retail sales growth slowed sharply from 7.4% yoy to 0.7% yoy, much lower than expectation of 3.2%. Trade surplus is wider than expected at 2.37b in Jul. Combined PPI jumped 0.5% mom, 4.9% yoy in Jul, above expectation.

BoJ left target overnight call rate unchanged at 0.5% as widely expected. The statement indicated that the bank had little option other than being on hold. CPI inflation is expected to be "somewhat higher" over the coming months while economic activity has slowed sharply. BoJ minutes of Jul meeting released overnight showed the board members are concerned that global slowdown is starting to affect the Japanese economy. "Second-round effects from the rise in prices of petroleum products and food" is expected to be limited. Jul trade balance released overnight showed 91.1b surplus, narrow than expected on strong rise of 18.2% in imports. Export rose 8.1%.

Canadian dollar continued to be supported by strong rebound in oil price and sold data. Headline sales climbed 0.5% mom in Jun, above expectation of 0.5%. Ex-auto sales growth was even more impressive, jumping 1.4% versus consensus of 0.5%. Leading indicators was unchanged for the second month in Jul. CPI rose 0.3% mom, 3.4% yoy in Jul, hitting a 5 year high, inline with expectation. Core CPI rose 0.1% mom, 1.5% yoy, slightly below consensus of 0.2% mom, 1.6% yoy. International securities transaction dropped less than expected to 7.3b in Jun

RBA minutes echoed prior communications and reaffirmed the bank's easing bias. The minutes said that "less restrictive monetary conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase."

GBP/USD Weekly Outlook

Cable engaged in choppy sideway trading most of the week but recovery was limited at 1.8794. Cable then dived again on Friday, breaking prior low of 1.8512 to 1.8505. Fall from 2.0150 should still be in progress to next target of 100% projection of 2.1161 to 1.9337 from 2.0158 at 1.8360. On the upside, though, above 1.8794 resistance will indicate that a short term bottom is in place and bring stronger rebound. Though, upside is expected to be limited by 1.9337 support turned resistance 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 while which 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.

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