In spite of initial weakness on Greece downgrade, European stocks staged strong recovery as bond auctions showed solid demand. Spain's Treasury raised EUR 5.2b at its 12 and 18-month T-bill auction while Belgium raised EUR 2.5 billion euros in a heavily oversubscribed auction. Ireland sold 1.5 billion euros in bonds. The results also offset disappointingly poor German ZEW economic sentiment reading and helped Euro recovered from intraday low. Dollar, on the other hand, is broadly soft in early US session after data showed import price index dropped -0.6% mom in June, Empire State manufacturing index rose less than expected to 19.6 in June.

German ZEW economic sentiment dropped much more than expected from 45.8 to 28.7 in June, lowest level since April 2009, while Eurozone ZEW also tumbled from 37.6 to 18.8. ZEW said in a statement that sentiment is weakened by uncertainty about the future developments of the debt crisis and the perspective of necessary cuts in public expenditure in EU-member countries. Some analysts thought that the deterioration in ZEW represented a worrying sign for the future and fear on peripheral debt crisis of Eurozone. Nevertheless, it's also pointed out that while the fall was sharp, German ZEW was still around historical average at 27, which was not too bad indeed.

Sterling is a bit lower against Euro after data showed faster than expected moderation in inflation where headline CPI dropped from 3.7% yoy to 3.4% yoy in May versus expectation of 3.5% yoy. Core CPI slowed from 3.1% yoy to 2.9% yoy. Other data from UK saw RICS house price balance rose to 22% in May. DCLG house price index rose 10.1% yoy in April.

The Japanese yen is slightly higher today and is gaining momentum in early European session. Bank of Japan left rates unchanged at 0.1% as widely expected. BoJ announced details of a JPY 3T loan scheme, which aims to get Japan out of deflation and achieve sustainable growth with price stability. The fund will be main available to private banks to lend to companies for making longer term business investments. Starting by the end of August, each participating bank could borrow a maximum of JPY 150b at the current 0.1% rate. The loan scheme will target 18 sectors including healthcare, environment and energy, tourism, science and technology as well as agriculture, forestry, and fisheries.

RBA minutes showed members are concerned that situation in Europe had deteriorated significantly and difficulties in Europe would inevitably weigh somewhat on prospects for global growth. The RBA judged that its six rate hikes afforded policy the flexibility to await information on how the recent market uncertainty might affect the global economy, as well as news about the outlook for inflation. The minutes affirm markets' view that RBA will be on hold in July and will determine it's next move based on inflation data to be released on July 28.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2123; (P) 1.2211 (R1) 1.2307;

EUR/USD recovers stronger after initial dip today. With 1.2045 minor support intact and 4 hours MACD staying above signal line, recovery from 1.1875 might still extend further. But after all, we're expecting strong resistance at 1.2330 to limit upside and bring down trend resumption. Below 1.2045 minor support will flip intraday bias back to the downside. Further break of 1.1875 will confirm fall resumption to 100% projection of 1.5143 to 1.3266 from 1.3691 at 1.1814 and then 1.1639 key support. However, strong break of 1.2330 will in turn suggest that a short term bottom is at least formed at 1.1875 and stronger rebound would then be seen to test 1.2671 resistance next.

In the bigger picture, whole down trend from 2008 high 1.6039 has resumed and should now target 1.1639 key support level and possibly further to 100% projection of 1.6039 to 1.2329 from 1.5143 at 1.1433. Nevertheless, strong support might be seen between 61.8% retracement of 0.8223 to 1.6039 at 1.1209 and 1.1639 and bring reversal. But after all, On the upside, break of 1.2671 resistance is needed to be the first signal of bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised -- JPY BoJ Interest Rate Decision 0.10% 0.10% 0.10% 23:01 GBP RICS House Price Balance May 22% 15% 17% 19% 01:30 AUD RBA Meeting Minutes -- -- 08:30 GBP CPI M/M May 0.20% 0.30% 0.60% 08:30 GBP CPI Y/Y May 3.40% 3.50% 3.70% 08:30 GBP Core CPI Y/Y May 2.90% 2.90% 3.10% 08:30 GBP RPI M/M May 0.40% 0.30% 1.00% 08:30 GBP RPI Y/Y May 5.10% 5.00% 5.30% 08:30 GBP DCLG UK House Prices Y/Y Apr 10.10% -- 9.70% 09:00 EUR German ZEW Survey (Economic Sentiment) Jun 28.7 42 45.8 09:00 EUR German ZEW Survey (Current Situation) Jun -7.9 -15 -21.6 09:00 EUR Eurozone ZEW Survey (Economic Sentiment) Jun 18.8 39 37.6 09:00 EUR Eurozone Trade Balance (EUR) Apr 1.4B 1.5B 0.6B 0.0B 12:30 CAD Labor Productivity Q/Q Q1 0.70% 1.20% 1.40% 12:30 CAD Manufacturing Shipments M/M Apr 0.20% 0.30% 1.20% 12:30 USD Import Price Index M/M May -0.60% -1.30% 0.90% 12:30 USD Empire State Manufacturing Jun 19.6 19.95 19.11 13:00 USD Net Long-term TIC Flows Apr 77.3B 140.5B 14:00 USD NAHB Housing Market Index Jun 22 22