Financial markets are generally mixed as earlier weakness in Asian equities was not carried through to European session. Dollar and yen turn soft but remain in tight range in general. Nevertheless, noticeable strength is seen in Euro, in crosses where we have EUR/GBP and EUR/CHF extending recent rebound. Meanwhile. commodity currencies are still generally weak, along with sterling.

News from Europe were not positive today. Firstly, Moody's downgraded Ireland's sovereign debt rating from Aa1 to Aa2 for the government's gradual but significant loss of financial strength. Secondly, EU and IMF suspended talks with Hungary and postponed the review of financial aid program to the country as they urged the country to do more to cut the budget deficit before resuming the use of the bailout funds. But after all, Euro is little bothered by the news.

Australian dollar is under pressure today after the new Australian Prime Minister Julia Gillard called a general election on Aug 21. Gillard replaced Kevin Rudd, said she haven't been elected and thus wanted to ensure Australians get the opportunity to exercise their vote, their birthright, to pick their prime minister, their government. Market pared bets on a rate hike from RBA in August as the bank is not expected to move during the election campaign. Also, the election will likely determine whether resources companies will need to pay higher taxes and will have impact on the Australian stock markets, which has close correlation with the Aussie dollar.

New Zealand dollar is lower after the Labor Department said that unemployment rate will likely remain elevated over the next few quarters. Kiwi was under pressure last week as CPI report showed tamer than expected inflation in the country. Traders further pare bet for rate hike from RBNZ after today's comments.

Dollar index consolidates above last week's low of 82.08 today and would probably have come more recovery. Nevertheless, short term outlook remains mildly bearish and whole correction from 88.70 is still expected to continue further towards 55 EMA first (now at 81.46) and possibly further to 80.04 support, which is close to 80 psychological level as well as 61.8% retracement at 79.73. However, such decline is viewed as a correction only and hence, we'd expect strong support between 79/80 to contain downside. On the upside, break of 84.56 resistance will indicate that such fall has completed and will turn outlook bullish for a test on 88.70 high.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5230; (P) 1.5346; (R1) 1.5414; More.

GBP/USD's pull back from 1.5470 extends further today and intraday bias is mildly on the downside for trend line support (now at 1.5077). Nevertheless, note that rise from 1.4230 remains in favor to continue as long as 1.4947 support holds. Above 1.5351 minor resistance will flip intraday bias back to the upside for 1.5470 and above. Decisive break of 1.5521 resistance will confirm that whole fall from 1.7043 has completed at 1.4230 already and target 61.8% retracement of 1.7043 to 1.4230 at 1.5968 next. However, failure below 1.5521, followed by break of 1.4947 will revive the case that fall from 1.7043 is still in progress and will flip intraday bias back to the downside for another low below 1.4230.

In the bigger picture, the sustained trading above medium term falling channel argues that whole fall from 1.7043 is finished at 1.4230 already. Break of 1.5521 resistance will confirm this bullish case. Also, this will indicate that rise from 1.4230 is the likely the third leg of the whole consolidation pattern from 2009 low of 1.3503. In such case, stronger rally would be seen to 1.7043 resistance and possibly above before long term down trend resumes. On the downside, failure below 1.5521 resistance and break of 1.4947 support will revive that case that fall from 1.7043 is still in progress for 1.3503 low.