Yen and dollar are softer in general in early US session as stocks open higher to continue yesterday's late recovery. Much better than expected jobless claims number from US, which dropped to 565k supports the recovery too. As for today, Sterling's rebound, trigger but BoE announce with no change in the quantitative easing program, is quite impressive. Has the markets turned? No solid evidence yet. major pairs and crosses are still hold key near term levels. Even the quite mixed EUR/GBP is holding above 0.8581 minor support. DOW is still way off this week's high of 8327 while crude oil is back pressing 60 level. Hence, we'd expect markets to resume recent risk aversion trend after brief consolidation.

BoE left rates unchanged at 0.5% as widely expected but surprised the markets by keeping the GBP 125b asset purchase program unchanged and said it will need another month to complete it. There were much speculations that BoE will add another GBP 25b into the program to extend quantitative easing. Sterling has been under much pressure since the start of the week but regains much ground against dollar, yen and euro. Nevertheless, note that outlook in GBP/JPY remains bearish on broad based strength in yen. GBP/USD's risk remains on the downside until a break of 1.6742 high. EUR/GBP's outlook is quite mixed for the moment but will still need a break of 0.8581 support confirm that it has topped.

According to ECB monthly bulletin, inflation risks in the Eurozone are broadly balanced. Upside risks come from higher than expected commodity prices and rises in indirect taxes but downside risks from uncertain economic outlook remain. ECB also said that indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council's aim of keeping inflation rates below, but close to, 2 percent over the medium term. Economic activities are expected to remains slow through 2009 but with a less marked reduction comparing to Q1. Slow recovery is expected by mid-2010.

After recent sharp gains, speculations of yen intervention is somewhat back in the markets. Japanese officials are quoted saying that rapid moves in the currency exchange rate is undesirable for stability of the Japanese economy. The Japanese government will also be closely watching the currency market trends. But after all, it's believed than yen is not at a level to trigger intervention yet.

Other data released today saw German Trade Balance at 9.6b in May. German CPI was unrevised at 0.4% mom, 0.1% yoy. Australian unemployment climbed less than expected to 5.8% in Jun while the job markets lost -21.4k jobs. UK trade deficit narrowed to -6.3B in May. Canadian housing starts rise more than expected to 141k in Jun.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 146.31; (P) 149.69; (R1) 152.64

With an intraday low in place at 146.75, GBP/JPY's recovery continues today. But after all, as noted before, upside is expected to be limited by 154.03 support turned resistance and bring fall resumption. Below 149.30 minor support will flip intraday bias back to the downside. Further break of 146.75 will indicate that decline from 162.56 has resumed for 143.00 key support next.

In the bigger picture, sustained trading below the medium term channel indicates that rise from 118.81, which is treated as correction to the fall from 215.87, has completed at 162.56 already. This view is supported with daily MACD turned negative too. Having said that, we'd expect the fall from 162.56 to extend to retest 118.81 eventually and will likely resume the whole down trend from 215.87. On the upside, though, firm break of 154.03 resistance will argue that fall from 162.56 might be completed in three wave structure, which in turn dampen the above view. In such case, rise from 118.81 might make another high before completion. But after all, we'd still expect reversal to happen in range of 155.88/167.34 (38.2% and 50% retracement of 215.87 to 118.81).

Economic Indicators Update

01:00AUDConsumer Inflation Expectation Jul3.20%--2.80%
01:30AUDEmployment Change Jun-21.4K-20.0K-1.7K-5.1K
01:30AUDUnemployment Rate Jun5.80%5.90%5.70%
06:00EURGerman Trade Balance (EUR) May9.6B9.0B9.4B
06:00EURGerman CPI M/M Jun F0.40%0.40%0.40%
06:00EURGerman CPI Y/Y Jun F0.10%0.10%0.10%
08:00EURECB Publishes Monthly Report Jul----
08:30GBPVisible Trade Balance (GBP) May-6.3B-6.7B-7.0B-7.1B
11:00GBPBoE Interest Rate Decision0.50%0.50%0.50%
12:15CADHousing Starts Jun141K130.0K128.4K
12:30USDInitial Jobless Claims565K608K614K
14:00USDWholesale Inventories May-1.00%-1.40%
14:30USDNatural Gas Storage--70B