Sterling is leading the breakout in forex markets today with GBP/USD taking out this year's high of 1.6617 and soars to as high as 1.6747 so far while strength of the pound is also clearly seen against Euro and Yen. While risk appetite is cited as the main driving force somewhere on the market, we're a bit skeptical as the rebound is Aussie is not as clear as in Sterling. On the other hand, while Crude oil breaches 73 level briefly, there is no comparable strength seen in Canadian dollar. Hence, while Sterling's strength is clear, as seen with recent resilience, some more evidence is needed to confirm broad based downside breakout of dollar.

Talking about the pound, UK Gfk consumer confidence improved from -27 to -25 in Jun, inline with expectation, much better than last year's -34. Gfk analysts said that after a pause last month, consumer confidence once more returned to growth and is now up 14 points from its all time low of last year. Confidence, however, remains fragile, as uncertainty about the strength of any recovery and an increase in unemployment all mean that consumers continue wary. Markets' focus will turn to finalized reading of Q1 GDP in UK which is expected to be revised down from -1.9% qoq, -4.1% yoy to -2.2% to -4.4% yoy. Based on recent sentiments on Sterling, we believe that reactions from the markets will likely be skewed to the upside. That is, impact would likely be muted in case of downside surprises in the GDP data but any upside surprise will fuel further rally in the pound.

Another main focus in the European session will be Eurozone CPI estimate which is expected to dip into negative territory of -0.2% yoy in Jun. Due to high base effect from the surge in food and energy prices in 2008, the headline reading will probably stay in the negative territory for 3 to 4 months. Eurozone M3 money supply growth is expected to slow further from 4.9% yoy to 4.6% yoy in May. Germany data is expected to show 45k increase in unemployment with unemployment rate climbing further from 8.2% to 8.3% in Jun.

Looking ahead, markets will look into conference board consumer confidence in US which is expected to improve further from 54.9 to 55.1 in Jun. Chicago PMI is expected to rise from 34.9 to 39. Canadian GDP will be another focus in the US session. GDP in Canada is anticipated to have fallen -0.1% in April, following a -0.3% drop in the previous month. Despite contraction, the pace has moderation from the first quarter. IPPI in Canada is expected to drop -0.6% mom in May.

Data released overnight saw Japan Manufacturing PMI rose from 46.6 to 48.2 in Jun. Unemployment climbed to five year high of 5.2% in May. Household spending rose 0.3% yoy, housing starts dropped -30.8% yoy.

Looking at the dollar index, the break of 79.56 low today indicates that corrective fall from 81.36 is still in progress and further weakness could now be seen with prospect of a brief break of 79.19 support. But after all, we'd expect quick rebound from this level to complete the consolidation from 81.74. Above 80.29 minor resistance will flip intraday bias back to the upside for 81.36/47 resistance zone first. However, note that sustained trading below 79.19 will indicate that recent fall is likely resuming for at least a new low in 77.69/78.33 support zone below bottoming in the dollar index.