Dollar and yen are trying to fight back against European majors in early US session. Dollar index jumped above 85 level and is heading to test 85.24 near term resistance. There is some support to the greenback from weakness in crude oil as the commodity drops through recent low of 74.51 to resume the near term down trend. Data from US saw jobless claims dropped slightly to 444k. Import price index rose 0.9% mom in April.

Portugal leaders have agreed on new austerity measures today to cut budget deficit by additional EUR 2b, half from spending cuts and half from tax hikes. This comes a day after Spain announced to cut civil servants pay by 5% this year, freeze it in 2011, cut investment spending and pensions and axe 13,000 public sector jobs to meet EU deficit targets. ECB said in its monthly bulletin that rates are appropriate with inflation expected to remain moderate. Economy is expected grow at moderate and uneven pace. The Governing Council also calls for decisive actions by governments to achieve a lasting and credible consolidation of public finances

Elsewhere, Sterling is broadly lower after disappointing trade balance result which showed deficit widened to GBP -7.5b in March. Nationwide consumer confidence rose to 74 in April. DCLG house price rose 9.7% yoy in March. Australian dollar remains resilient for today, supported by job report which showed 33.7k expansion in April while unemployment was unchanged at 5.4%. Japan current account surplus widened to JPY 1.77T in March.

One thing to note is that further weakness in crude oil will probably provide the needed fuel for dollar index to break through 85.24 resistance. Today's break of 74.51 support indicates that whole fall from 87.15 has resumed. We'd expect the current fall to extend to 70 psychological level and would face the important support levels of 68.59/69.50.

Looking at the dollar index, the break of 84.92 minor resistance indicates that rise from 82.93 is resuming for a test on 85.25 high. Decisive break there will confirm that whole medium term up trend from 74.19 has resumed and should target next key resistance at 86.87 next.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2566; (P) 1.2652 (R1) 1.2699;

EUR/USD drops further to 1.2542 in early US session and intraday bias remains on the downside for 1.2526 low first. Break there will confirm that whole down trend from 1.5143 has resumed and should then target 1.2329 key support level next. On the upside, above 1.2685 minor resistance will suggest that consolidation from 1.2526 is still in progress and bring another recovery. But after all, we'd continue to expect strong resistance at 1.3114 to limit upside and bring down trend resumption eventually.

In the bigger picture, price actions from 1.6039 are treated as correction to long term up trend from 0.8823 and fall form 1.5143 is the third leg of such correction. Further decline should be seen to 1.1639 key support level and possibly further to 100% projection of 1.6039 to 1.2329 from 1.5143 at 1.1433. On the upside, break of 1.3691 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised 23:01 GBP Nationwide Consumer Confidence Apr 74 74 72 73 23:50 JPY Current Account Total (JPY) Mar 1.77T 1.49T 1.12T 1.07T 23:50 JPY Japan Money Stock M2+CD Y/Y Apr 2.90% 2.50% 2.60% 2.70% 01:30 AUD Employment Change Apr 33.7K 22.5K 19.6K 27.7K 01:30 AUD Unemployment Rate Apr 5.40% 5.30% 5.30% 5.40% 08:00 EUR ECB Monthly Report -- -- 08:30 GBP Visible Trade Balance (GBP) Mar -7.5B -6.5B -6.2B -6.3B 08:30 GBP DCLG UK House Prices Y/Y Mar 9.70% 8.90% 7.40% 12:30 USD Import Price Index M/M Apr 0.90% 0.80% 0.70% 0.50% 12:30 USD Initial Jobless Claims 444K 440K 444K 448K