Dollar continues to lose ground on the back of renewed strength in commodity price as well as diversification talk. The greenback is indeed trading below last week's close against major currencies. China's Vice Foreign Minster said that no on is talking about dumping the dollar today. But after that, IMF released a statement with Strauss-Kahn welcoming China's intention to invest up to $50b in IMF notes. Canadian dollar is indeed the best performer today as crude oil is now back pressing 70 level. Aussie is lift by gold's rebound to above 960. Meanwhile, Sterling also gains impressively as the political uncertainty in UK is cleared temporarily, with Gordon Brown hanging on as Prime Minister.

Euro, on the other hand is the relatively weaker one, still feeling the pressure of Ireland's downgrade and IMF's comments that ECB should explore further rate cuts to below 1.00%. For example, on the back of oil price's strength EUR/CAD is now much closer to last week's low of 1.5343 comparing to USD/CAD's corresponding low of 1.0784. We'd expect Euro to continue to underperform Aussie and Canadian dollar.

Prime Minister Gordon Brown won the support of most Labour lawmakers, promising to address his weakness by changing his leadership style after a two-hour closed dollar meeting in Parliament following the worst defeat national election results since 1918. Political uncertainty is believed to be temporarily cleared as Labour rebels believe there is no alternative leader coming forward. And even worse is that a new leader would have a stage an early election and at which Labour Party would be crushed.

On the data front, some sign of stabilization in the housing markets is seen in data from UK today. RICS house price balance rise more than expected -44.1% in May, best reading in 18 months. DCLG house price index also dropped less than expected by -13.0% yoy April. BRC retail sales monitor dropped -0.8% in May. From Eurozone, German industrial production unexpectedly dropped -1.9% mom in April. German trade surplus rose less than expected to 9.0b Euro in April. Japan leading indicator rose less than expected to 76.5% in April. Australian NAB business confidence improved to -2 in May.

USD/JPY Mid-Day Outlook

USDJPY's retreat from 98.81 extends further to as low as 97.52 in early US session and at this point, intraday bias remains mildly on the downside as long as 98.41 minor resistance holds. Further pull back could be seen to 4 hours 55 EMA (now at 96.80). But after all, downside should be contained by support zone and bring rally resumption. Above 98.41 will flip intraday bias back to the upside. Further break of 98.87 will target 99.71 next and then a retest of 101.43 high.

In the bigger picture, recent developments indicate that price actions from 99.67 are merely consolidation in the larger up trend from 97.12, probably in form of a triangle. Hence, current rise from 93.84 may be limited between 99.71/101.43 resistance zone initially and bring another fall before resuming the rise from 87.12. Nevertheless, sustained break of 101.43 will indicate that whole rally from 87.12 has resumed and should target 110.65 resistance next. On the downside, a break below 93.84 support is needed to invalidate this bullish view.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:01GBPBRC May Retail Sales Monitor-0.80%4.60%
23:01GBPRICS House Price Balance May-44.10%-52.00%-59.90%-58.70%
1:30AUDNAB Business Confidence May-2---14
5:00JPYLeading Indicators Apr P76.50%77.276.375.50%
6:00JPYMachine Tool Orders Y/Y May P-79.30%---80.40%
6:00EURGerman Trade Balance (EUR) Apr9.0B9.4B8.9B
8:30GBPDCLG UK House Prices Y/Y Apr-13.00%-13.30%-13.60%
10:00EURGerman Industrial Production M/M Apr-1.90%0.00%0.00%0.30%
14:00USDWholesale Inventories Apr-1.10%-1.60%
14:00USDIBD/TIPP Economic Optimism Jun5148.6