Euro is rather volatile today on mixed news. Portugal's sovereign bond ratings was cut two notches by Moody's from Aa2 to A1. Moody's said that Portuguese government's financial strength will continue to weaken over the medium term, and expects the debt situation to continue to deteriorate for at least another two to three years before stabilizing. German ZEW investor confidence hit 15 month low of 21.2 in June, much worse than expectation of 25.3. However, Euro is supported as Greece auction of 6 months T-bills was well received. Greece sold EUR 1.626b of 6 month T-bills today with bid-to cover ration at 3.64. Also, the rate was at 4.65%, which was lower than the 5% charged by EU for its bailout package.

On the other hand, Dollar and yen attempted to extend rebound earlier today but the strength faded in European session. Both currencies might be back under some pressure on strong open in US stocks on strong earnings from Alcoa. Sterling is boosted by stronger than expected inflation data today. CPI rose 0.1% mom, 2.2% yoy in June comparing to expectation of 0.0% mom, 3.1% yoy. Core CPI unexpectedly rose from 2.9% yoy to 3.1% yoy. The data suggests that inflation is not coming down as fast as BoE expected and raised some speculations of rate hike later this year. Other data from UK saw BRC retail sales monitor rose 1.2% in June. RICS House price balance dropped to 9% in June. DCLG house price rose more than expected by 11% yoy in May.

Other data released today saw US trade deficit came in wider than expected at -42.3b while Canadian trade deficit came in at CAD -0.5b in May. Swiss combined PPI dropped -0.4% mom, rose 0.9% in June. Australia NAB business confidence dropped to 4 in June. Japan household confidence improved to 43.5 in June.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2549; (P) 1.2598 (R1) 1.2645; More.

Update: Just minutes after we published this report, EUR/USD rebounds strongly and broke 1.2613 minor resistance. A temporary low is in place at 1.2522 and bas is turned neutral. Note we'd still expect upside of the current recovery from 1.2522 to be limited below 1.2721 resistance and bring another fall. Below 1.2522 will target 1.2149 and break will confirm that corrective rise from 1.1875 is completed. However, decisive break of 1.2721 will likely have EUR/USD sustained above medium term trend line resistance, will indicate that the medium term trend might have reversed. In such case, stronger rally would be seen towards 1.3266 resistance instead.

At this point, intraday bias in EUR/USD remains on cautiously on the downside with 1.2613 minor resistance intact. Below 1.2479 minor support will indicate that recovery from 1.1875 is finished and bring deeper fall to 1.2149 support first. Break will confirm this bearish case and target another low below 1.1875. On the upside, above 1.2613 will turn intraday bias neutral again. Also, note that sustained trading above the trend line (now at 1.2698) will invalidate bearish view and bring stronger rally towards 1.3266 resistance instead.

In the bigger picture, fall from 1.5143 is part of the whole down trend from 2008 high of 1.6039. Such decline is expected to develop into a five wave sequence and target 100% projection of 1.6039 to 1.2329 from 1.5143 at 1.1433. We'd expect the current rebound from 1.1875, which is viewed as the fourth wave inside the five wave sequence from 1.5143, to be limited by trend line resistance (now at 1.2716) and bring one more fall. Break of 1.1875 will target next key support level at 1.1639. Nevertheless, sustained trading above the trend line will be the first alert that EUR/USD has bottomed earlier than we thought and will turn focus to 1.3266/3691 resistance zone.

EUR/USD

EUR/USD