Euro recovered strongly earlier today after ECB said that EUR 131.9b loan will be provided to banks in the three-month tender, less than half of markets estimate of EUR 300b. The lower than expected amount was viewed as an encouraging sign that banks in Europe are not that desperate in need for liquidity. Also, there were additional technical support from rebound in EUR/GBP. Nevertheless, Euro lost momentum in early US session after ADP private employment report missed expectation and showed merely 13k gain in June. Canadian GDP also disappointed by being flat in April.

Sterling, on the other hand, was weighed down by dovish comments from MPC member Adam Posen. Posen said that US is still poised between two very different outcomes, with UK economy tentatively in the recovery state, but still subject to switching back into the recession state. Meanwhile, Posen also said that persistently high UK inflation reflects a modest increase in public expectations of price growth in response to crisis measures, but that doesn't warrant an interest rate hike.

Elsewhere, IMF said that it will meet on Friday to discuss disbursements of EUR 900m loan to Romania. Also, Hungary would look to extends the IMF package until the end of 2010 and sign a new precautionary standby agreement for 2011.

On the data front, Japan PMI manufacturing dropped to 53.9 in June. Housing Starts unexpectedly dropped -4.6% yoy in May. UK Gfk consumer confidence dropped to -19 in June. Nationwide house price rose 0.1% mom, 8.7% yoy in June. German unemployment dropped slightly less than expected by -21k in June while unemployment rate was unchanged at 7.7%. Eurozone CPI moderated to 1.4% yoy in June. Swiss KOF leading indicator rose slightly to 2.25 in June.

Development in GBP/CHF is inline with our expectation. As noted before, fall from 1.7073 is possibly resuming whole decline from 1.8111. We'd stay bearish in GBP/CHF as long as 1.6581 resistance holds and further decline should be seen to 1.5825 first. Break will confirm our bearish view and target a test on 2008 low of 1.5111 low next.

Dollar index retreats sharply today and is back below 86. As noted before, upside is still limited below 86.42 resistance and hence, there is no confirmation that corrective fall from 88.70 is finished. Another decline cannot be ruled out. A break below 85.09 will bring another fall to medium term trend line support (now at 83.36) before such correction concludes. Nevertheless, break of 86.24 will flip bias back to the upside and bring retest of 88.70 high.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 88.11; (P) 88.76; (R1) 89.24;

USD/JPY recovers mildly today but after all, intraday bias remains on the downside for 88.13/25 support zone. Break there will confirm our bearish view that whole fall from 94.97 is resuming for a test on 84.81 low. On the upside, above 89.45 minor resistance will turn intraday bias neutral and bring consolidations. But upside should be limited below 90.85 resistance and bring fall resumption.

In the bigger picture, USD/JPY is still trading below a falling 55 weeks EMA and whole down trend from 124.13 is possibly not over yet. 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 GfK Consumer Confidence Survey Jun -19 -19 -18 23:15 JPY Nomura/JMMA Manufacturing PMI Jun 53.9 -- 54.7 05:00 JPY Housing Starts Y/Y May -4.60% 5.00% 0.60% 05:00 JPY Annualized Housing Starts May 0.737M 0.810M 0.793M 06:00 GBP Nationwide House Prices M/M Jun 0.10% 0.30% 0.50% 06:00 GBP Nationwide House Prices Y/Y Jun 8.70% 9.00% 9.80% 07:55 EUR German Unemployment Change Jun -21K -25K -45K -41K 07:55 EUR German Unemployment Rate Jun 7.70% 7.70% 7.70% 09:00 EUR Eurozone CPI Estimate Y/Y Jun 1.40% 1.50% 1.60% 09:30 CHF KOF Swiss Leading Indicator Jun 2.25 2.14 2.16 12:15 USD ADP Employment Change Jun 13K 60K 55K 12:30 CAD GDP M/M Apr 0.00% 0.10% 0.60% 13:45 USD Chicago PMI Jun 59 59.7 14:30 USD Crude Oil Inventories -0.9M 2.0M