Dollar and yen strike back in early US session on much worse than expected new residential construction data from US. Housing starts fell -10% to 593 annualized rate in May, the lowest level this year. Building permits dropped -9.9% to 574k annualized rate. Both were way off expectations of 650k and 625k respectively. NAHB housing market index also dropped sharply by -5 pts to 17 in June as released yesterday. Investors are concerned on whether the dip in housing sector is temporary due to expiration of tax credit or it's the start of another down turn. PPI in US slowed less than expected to 5.3% yoy in May with core PPI up more than expected to 1.3% yoy. Industrial production rose 1.2% mom in May with capacity utilization up to 74.7%

Data from Eurozone saw CPI finalized at 1.6% yoy in May. Spread on Spanish government bonds over German bunds rose to all time high of 223.5 basis points today on talk that there will be a rescue package for Spain as IMF Managing Director Strauss-Kahn is set to meet Spanish Prime Minister Jose Luis Rodrigo Zapatero later on Friday. There are rumors that EU, IMF and US Treasury are drawing up a liquidity plan for Spain with credit line up to EUR 250b but that was denied by Spanish government. Spreads on other peripheral Eurozone bonds over bunds also widened with Greek Bund spread rose to 695 basis points, Portugal bund spread up to 695 basis points and Italy bun spread up to 142 basis points.

Sterling was lifted mildly against Euro after better than expected job data. Unemployment rate unexpectedly dropped fro 8.0% to 7.9% in April. Claimant count also dropped more than expected by -30.9k in May. Swiss ZEW dropped sharply fro 40.5 to 17.5 in June.

In the monthly report, BoJ kept its economic assessment unchanged. The bank said that Japan's economy shows further signs of a moderate recovery, induced by improvement in overseas economic conditions, and expected the economy is likely to be on a recovery track ahead. Also, while employment and income situation has remained severe, the degree of severity has eased somewhat. Inflation outlook was unchanged with year-on-year pace of decline in consumer prices is expected to slow as a trend as the aggregate supply and demand balance improves gradually.

Russian Central Bank's first deputy Chairman Alexei Ulyukayev said that adding Australian dollar to its international reserves is being discussed. The bank has added Canadian dollar but haven't yet begun operations. Russia's $458b reserve is the world's third largest and consist of 47% dollar, 41% euro, 10% pound and 2% yen.

Dollar index recovers from yesterday's low and is back above 86 level. This is no indication of reversal yet but even in case of another fall, we'd expect strong support from 38.2% retracement of 80.04 to 88.7 at 78.60 to conclude the correction from 88.70 and bring up trend resumption. Above 86.88 will flip intraday bias back to the upside for retesting 88.70 first.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 91.12; (P) 91.41; (R1) 91.73;

USD/JPY dips mildly today but is still staying in tight range and intraday bias remains neutral. As noted before, price actions from 88.25 are treated as consolidation to fall for 94.97 only. Below 90.83 minor support will argue that such consolidation has possibly completed and will bring decline to 88.25 support for confirmation. On the upside, in case of another rise, we'd continue to expect strong resistance below 93.62 to conclude the rebound from 88.97 and bring another fall.

In the bigger picture, considering that USD/JPY failed to sustained above 55 weeks EMA and dropped sharply, we're now slightly favoring the case that down trend from 124.13 is not over. Break of 88.13 support will indicate that rebound from 84.81 has completed with three waves up to 94.97 already. The corrective structure will affirm the bearish case and pave the way to a new low below 84.81. On the upside, however, break of 94.97 will revive the case that 84.81 is already the long term bottom and will target 101.43/65 medium term resistance zone for confirming this bullish case.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised 23:01 GBP Nationwide Consumer Confidence May 65 72 74 75 23:50 JPY Tertiary Industry Index M/M Apr 2.10% 2.50% -3.00% -2.70% 00:30 AUD Westpac Leading Index M/M Apr 0.00% -- 0.90% 1.00% 05:00 JPY BoJ Monthly Report -- -- 08:30 GBP Claimant Count Change May -30.9K -20.0K -27.1K -32K 08:30 GBP Claimant Count Rate May 4.60% 4.70% 4.70% 08:30 GBP ILO Unemployment Rate (3M) Apr 7.90% 8.00% 8.00% 09:00 CHF ZEW Survey (Expectations) Jun 17.5 -- 40.5 09:00 EUR Eurozone CPI M/M May 0.10% 0.10% 0.50% 09:00 EUR Eurozone CPI Y/Y May F 1.60% 1.60% 1.60% 09:00 EUR Eurozone CPI Core Y/Y May 0.80% 0.80% 0.80% 0.80% 12:30 USD PPI M/M May -0.30% -0.50% -0.10% 12:30 USD PPI Y/Y May 5.30% 4.90% 5.50% 12:30 USD PPI Core M/M May 0.20% 0.10% 0.20% 12:30 USD PPI Core Y/Y May 1.30% 1.10% 1.00% 12:30 USD Housing Starts May 593K 650K 672K 659K 12:30 USD Building Permits May 574K 625K 606K 610K 13:15 USD Industrial Production May 1.20% 0.80% 0.80% 13:15 USD Capacity Utilization May 74.70% 74.50% 73.70% 14:30 USD Crude Oil Inventories -1.5M -1.8M