The forex markets continue to stay in tight range today despite some big surprises from inflation data from US and UK. US PPI dropped sharply by 2.8% mom in Oct, biggest fall since the series began in 1947. Year over year rate was down from 8.7% to 5.2% versus consensus of 6.2%. Core PPI, though, rose 4.4% with yoy rate up to 4.4%. TIC capital flow rose to 66.2B in Sep. Focus will turn to testimony of Bernanke and Paulson.

UK consumer inflation had the steepest drop in at least 11 years in Oct. Headline CPI dropped -0.2% in mom, first decline since 2001. Year-over-year rate moderated more than expected from 16 year high of 5.2% to 4.5%. Core CPI dropped -0.7, steepest drop since records began in 1997. Year-over-year rate slowed from 2.2% to 1.9%. RPI dropped -0.3% mom, with yoy slowed to 4.2%. RPI-X dropped -0.3%, with yoy rate slowed to 4.7%. The sharp cooling of inflation marked a turn in the trend which is expected to carry on until next year. BoE has slashed rates by 200bps since early October and based on current inflation outlook, further rate cut is still expected in Dec, probably by another 50bps. Eventually, markets are expecting BoE to cut rates to 2% by mid 2009.

Other data today saw Swiss retail sales unexpectedly rose 6.4% mom in Sep. Japanese leading indicators was revised slightly higher to 89.4 in Sep.

Technically speaking, dollar index continues to stay in tight range below 87.98, possibly in triangle consolidation. Consolidation in most major pairs are still in progress and will probably extend further. Stocks are set to have a mixed open today and focus will be on whether Dow would extend this week’s decline to test recent low of 7884. Crude oil dipped to 54.13 earlier today but recovers back to above 55 in early US session.
BY ActionForex