Dollar and yen were generally higher in European session as stock pared yesterday's China triggered gains. Investors re-evaluated the impact of China's yuan unpeg and some thought that there will be little impact of global recovery, except its composition. Commodities were also sharply lower as markets viewed yesterday's strong rally as nothing more than a knee-jerk reaction. European stocks were also additionally dragged down as Fitch downgraded BNP Paribas by one notch to AA-. Dollar index edged further higher to 86.25 and is hovering around 86 level in early US session.

Reactions to U.K. Chancellor of the Exchequer Osborne's emergency budget is so far muted. Osborne's plan will lower public sector net borrowing to GBP 149b this year, 116b next year, GBP 89b in 2012-13 and 60b in 2013-14. in 2014-15, borrowing will be GBP 37b which is half of the amount forecast in March budget, then 20b in 2015-16. Borrowing as share of GDP will be lowed from around 10.1% this year to just 1.1% in 2015-16. GDP growth is expected to be 1.2% this year, then 2.3%, 2.8%, 2.9%, 2.7% till 2014-15.

On the data front, Canadian CPI rose 0.3% mom, 1.4% yoy in May with core CPI up 0.3% mom, 1.8% yoy. German Ifo business climates unexpectedly rose from 101.5 to 101.8 in June. Eurozone current account turned to EUR -5.1b deficit. Swiss Trade surplus came in narrower than expected at CHF 0.82b.

AUD/JPY retreated sharply after climbing to 80.85 earlier this week and strong resistance was seen at 100% projection of 71.86 to 78.99 from 73.65. Intraday bias is turned neutral for the moment. A break below 77.50 will flip intraday bias back to the downside and suggest that recovery from 71.86 has possibly completed. This will also affirm our view that such recovery is merely a correction in the larger fall and deeper decline should then be seen to 71.86/73.65 support zone then.

EUR/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.3657; (P) 1.3709; (R1) 1.3745;

EUR/CHF's down trend is still in progress and reaches as low as 1.3590 so far in early US session. Intraday bias remains on the downside and further fall is expected to 100% projection of 1.5138 to 1.4002 from 1.4587 at 1.3451 next. On the upside above 1.3696 minor resistance will turn intraday bias neutral and bring recovery. But upside should be limited well below 1.4039 resistance and bring fall resumption.

In the bigger picture, EUR/CHF's down trend from 2007 high of 1.6827 is still in healthy state as it's trading well below 55 weeks EMA. Next target will be 100% projection of 1.8234 to 1.4391 from 1.6827 at 1.2984, which is close to 1.3 psychological level. On the upside, break of 1.4587 resistance is needed to signal medium term reversal. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised 6:15 CHF Trade Balance (CHF) May 0.82B 1.97B 2.02B 2.06B 8:00 EUR German IFO - Business Climate Jun 101.8 101.2 101.5 8:00 EUR German IFO - Expectations Jun 102.4 102.7 103.7 8:00 EUR German IFO - Current Assessment Jun 101.1 100 99.4 8:00 EUR Eurozone Current Account (EUR) Apr -5.1B 1.1B 1.7B 1.5B 11:00 CAD CPI M/M May 0.30% 0.00% 0.30% 11:00 CAD CPI Y/Y May 1.40% -- 1.80% 11:00 CAD BoC CPI Core M/M May 0.30% 0.30% 0.30% 11:00 CAD BoC CPI Core Y/Y May 1.80% -- 1.90% 11:30 GBP U.K. Government Publishes Budget Report -- -- 14:00 USD Existing Home Sales Jun 6.20M 5.77M 14:00 USD House Price Index M/M May 0.30% 0.30%