Quick update: Dollar and yen extends today's on risk aversion after S&P cut Greece's soverign rating by three levels to BB+, or junk. Portugals' rating was also lowered by two steps to A-. S&500 accelerated earlier loss and dropped more than 1.8% in US afternoon. Dollar index breached 82.07 resistance and is set to take on 82.24 high next.

Dollar and yen fight back today on risk aversion as European stock markets are broadly low on concern of debt-contagion in the Eurozone. ECB Vice President Papademos said that the EU/IMF aid program will markets about the credibility of the fiscal adjustments and will contain potential contagion effects in the euro area, but markets are clearly not listening. CDS on Greece's 5 years bond rose again to 737 bps while that of Portugal also jumped to 335bps. Commodities also follow stocks lower with crude oil back below 84 while gold is trading below 1150.

Dollar index's strong rebound today argues that the pull back from 82.07 might be finished after drawing support from 4 hours 55 EMA. Intraday bias is now cautiously on the upside for a retest on 82.24 high. Decisive break there will confirm that whole medium term rally has resumed for 61.8% retracement of 89.62 to 74.19 at 83.72 next.

On the data front, US S&P Case Shiller 20 cities house price index rose less than expected by 0.6% yoy in February. UK CBI distributive traders disappointed by staying unchanged at 13 in April. Australia PPI rose 1.0% qoq, dropped -0.1% yoy in Q1 versus expectation of 0.6% qoq, -0.6% yoy. NAB business confidence dropped slightly from 18 to 17. German Gfk consumer confidence improved from 3.4 to 3.8 in May. German important price index rose 1.7% in March. Swiss UBS consumer indicator rose from 1.2 to 1.71 in March.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3318; (P) 1.3357 (R1) 1.3423; More.

EUR/USD's break of 1.3291 minor support suggests that recovery form 1.3201 has completed at 1.3417 after hitting 4 hours 55 EMA. Intraday bias is flipped back to the downside and break of 1.3201 will confirm down trend resumption. In such case, EUR/USD should target 61.8% projection of 1.4578 to 1.3443 from 1.3817 at 1.3113 next. On the upside, however, decisive break of 1.3417 resistance will mix up the near term outlook and turn focus to falling trend line resistance at 1.3623 instead.

In the bigger picture, the break of 1.3266 support confirms that whole medium term decline from 1.5143 has resumed. As discussed before, the three wave consolidation from 2008 low of 1.2329 has completed at 1.5143 already and fall from there is resuming whole down trend from 2008 high of 1.6039. We'd expect fall from 1.5143 to break through 1.2329 low eventually. On the upside, break of 1.3691 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.

EUR/USD