Euro rebounds strongly today on news that ECB is going to grant 78 banks EUR 111.2b of funds for six days to assist them in coping with expiry of the 12 month loan which totals EUR 442b. The announcement overshadowed downgrade risk of Spain and helped Euro extends its rebound. On the other hand, the Japanese yen extends recent rally on risk aversion and breaks 88 level against dollar as global stocks are broadly low. Australian dollar is so far the weakest on worry of further slow down in China economy as well as poor data.

Data released today saw US initial jobless claims remained high at 472k. UK PMI manufacturing dropped to 57.5 in June. Eurozone PMI manufacturing was left revised at 55.6 in June. Swiss SVME PMI dropped to 65.7 in June. China manufacturing PMI dropped more than expected to 52.1 in June, adding to sign that China's fast growing economy is cooling. Australian retail sales rose less than expected by 0.2% mom in May while building approvals unexpectedly dropped -6.6% in May. Japanese Tankan large manufacturers index turned positive to _1 in Q2 while non-manufacturing index improved to -5.

AUD/JPY drops further to as low as 73.23 so far today and the break of 73.65 support first affirms our view that fall from 80.85 is resuming whole decline from 88.04. Note that AUD/JPY has very high correlation with Australian All Ordinaries index. The index is set to take out 4194 low later in the month, which should then send AUD/JPY through corresponding level of 71.86.

Dollar index dives again today on the back of Euro's rebound but it's still staying in range. With 86.42 resistance, fall from 88.70 is still in favor to extend to medium term trend line support (now at 83.39). Note that dollar has decoupled from risk aversion recently and there is little chance of a sizeable rebound before USD/JPY bottoms.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 88.26; (P) 88.52; (R1) 88.67; More.

USD/JPY's fall extends further to as low as 87.63 today and the strong break of 88.13/25 support zone confirms that whole decline from 94.97 has resumed. Intraday bias remains on the downside and deeper decline should now be seen to retest 84.81 low. On the upside, above 88.76 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited below 90.27 resistance and bring fall resumption.

In the bigger picture, the break of 88.13 support confirms that medium term rebound from 84.81 has completed with three waves up to 94.97 already. The corrective structure in turn indicates that whole down trend from 2007 high of 124.13 is still in progress. Retest of 84.81 should be seen next and break will confirm down trend resumption for next key level of 79.75 (1995 low). On the upside, break of 94.97 resistance is needed to be the first sign of medium term reversal. Otherwise, we'll stay bearish.