The single currency extended yesterday's fall on renewed worries over eurozone debt crisis contagion after Italian debt auction resulted at highest borrowing cost in 11 years, falling Italian bond due to high yields in the secondary market put extra pressure on euro. The surging Italian bond yields intensified concerns that the second Greek bailout plan agreed last week may not be sufficient to stop the debt crisis from spreading to other eurozone countries like Italy and Spain.

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The release of eurozone confidence index (including consumer, economic, industrial and services sectors) all came in weaker than economists' forecast, which also contributed to euro's weakness. The single currency quickly slipped to 1-week low of 1.1.4253 in European session after triggering stops at 1.4320 and 1.4300 (as indicated in our previous update). More stops are reported at 1.4240/45 (from trading system funds) but sizeable bids from U.S. and UK banks are tipped further out from 1.4220 down to 1.4200. On the upside, some offers are likely to appear at 1.4300 with short-term stops placed above 1.4310

Lack of solid progress in U.S. debt ceiling negotiations kept the greenback on the defensive side especially versus Japanese yen and Swiss franc. The House of Representatives planned to vote later today on a proposal of debt ceiling increase and an unified opposition in the Senate is expected. The Japanese yen traded higher across the board as capital rushing for a refuge, early comments from Japan's Economic Minister Kaoru Yosano also helped pushing yen higher as he indicated that the officials will wait for the outcome of U.S. debt talk before considering intervention to sell Japanese yen in the forex market. Middle East names and real money accounts were seen selling dollar against the yen and offers are still noted at 78.10-20 with first stops remain at 78.30 and mixture of offers and stops is still seen at 78.70-80. On the downside, option barrier remains at 77.50 with stops placed below this sensitive level and more option triggers are located at 77.25 and 77.00 (large).

The Swissy hit another record low of 0.7990 today on safe-haven demand of Swiss franc, however, traders quickly covered their short positions after failing to trigger stops below 0.7990. The release of fewer initial jobless claims number also helped supporting the greenback in New York morning, the Labor Department reported that U.S. initial jobless claims during the week ended 23 July dropped more than expected, falling to 398,000 422,000 (revised) and well below forecast of 412,000. Option barriers remain at 0.7950, 0.7900 and further out at 0.7850 whilst offers are reported from 0.8040 up to 0.8060 with some stops placed at 0.8080 but more selling interest is likely to emerge around 0.8100.

The British pound was first hammered by the release of worse-than-expected CBI retail sales data, -5 versus forecast of 2 and previous number of -2, bids at 1.6300-10 were absorbed, whilst some stops at 1.6300 were triggered, stops below 1.6285-90 were untouched with more sizeable stops remain at 1.6250 (bids ahead). On the upside, decent offers are noted at 1.6360 and 1.6380-00 with sizeable stops only emerging above 1.6400-10.

Some traders are awaiting speeches from Federal Reserves' Lacker and Williams and more importantly from Treasury Secretary Geithner later today. Group of Republican House members will hold news conference at 14:30GMT to discuss House of Representatives Speaker John Boehner's plan on raising debt ceiling, then Boehner and other Republican House leaders will hold news conference at 17:30GMT.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.57; (P) 112.39; (R1) 112.85; More

EUR/JPY's break of 111.45 minor support suggests that recovery from 109.57 has completed at 113.56 already. Intraday bias is back on the downside for retesting 109.57 first. Break will confirm resumption of whole fall from 123.31 and should target 61.8% projection from 117.74 to 109.57 from 113.56 at 108.51 next. On the upside, break of 113.56 resistance is needed to invalidate this view or we'll stay cautiously bearish in the cross.

In the bigger picture, current development suggests that rebound from 105.42 medium term was merely a correction and has completed at 123.31 already. Whole down trend from 2008 high of 169.96 was not finished yet and is still target a new low below 105.42. Nevertheless, in that case, we'd start to look for reversal signal again around 100 psychological level unless weekly MACD would break it's up trend line.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
21:00NZDRBNZ Rate Decision2.50%2.50%2.50% 
23:50JPYRetail Trade Y/Y Jun1.10%-0.50%-1.30% 
07:55EURGerman Unemployment Change Jul-11K-15K-8K 
07:55EURGerman Unemployment Rate Jul7.00%7.00%7.00% 
09:00EUREurozone Consumer Confidence Jul F-11.2-11.4-11.4-10
09:00EUREurozone Economic Confidence Jul103.2104105.1105.4
09:00EUREurozone Industrial Confidence Jul1.11.63.2 
09:00EUREurozone Services Confidence Jul7.99.29.910.1
10:00GBPCBI Reported Sales Jul-52-2 
12:30USDInitial Jobless Claims398K412K418K 
14:00USDPending Home Sales M/M Jun2.40%-2.00%8.20% 
14:30USDNatural Gas Storage 38B60B

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