Yen crosses stage a very strong rebound after initial weakness today on a couple of reasons. Firstly, there was verbal intervention from Vice Finance Minister of Japan Sugimoto, who said that excessive moves in currencies may hurt economy. Secondly, investors sentiments seem improved as seen in rally in European stocks. Thirdly, most yen crosses drew support from trend line as mentioned in our prior reports. Among the pairs, commodity yen crosses are the biggest winners so far with AUD/JPY, NZD/JPY, CAD/JPY topping the top movers chart.

Markets are sensitive to possibility of intervention, in particular as there are speculations that SNB sold the Franc last Friday to curb the currency's gain against Euro. While the impact was strong, EUR/CHF is staying in range after all while USD/CHF is retreating from last week's gain. It's doubtful whether the impact of speculation of yen intervention would sustain. Risk aversion and stock markets development will likely remain the major factor in driving yen.

Looking at stocks, DOW opens higher today and is back above 8300 level. Note that the index is drawing good support from 4 hours 55 EMA and is still kept inside near term rising channel. Also, it's still holding above last month's close, this months' high of 8167/68. Hence, while upside momentum is diminishing, there is no confirmation of a top yet. Hence, it will probably provide some support to yen crosses.

Dow

Euro continue to underperform AUD and GBP today with EUR/GBP dropping to as low as 0.8806 and EUR/AUD diving to 0.7737 so far. While crosses are still kept above recent lows, they now look vulnerable to additional selling pressure and we could see resumption of recent fall in these crosses in near future. The Eurozone recorded a trade surplus of 0.4B euro in March, the first time the reading rose from the red since June 2008, following a revised 1B euro deficit a month ago. Adjusted seasonally, trade deficit in March came in at 2.1B euro, better than market expectation of 3.8B euro and an upwardly revised 2.9B euro.

NAHB housing market index probably increased to 16 in May after adding 5 points to 14 in April. Better than expected data will fuel some optimism to tomorrow's new residential construction data.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5110; (P) 1.5199; (R1) 1.5265;

While the rebound in GBP/USD today is impressive, upside is still limited below 1.5371/5352 resistance zone. Hence, intraday outlook remains neutral for the moment and some more sideway trading might still be seen, with risk of another fall. Nevertheless, break of 1.5371 will confirm that recent rally in GBP/USD has resumed and should target 1.5722 resistance next. On the downside, below 1.5054 will flip intraday bias back to the downside for channel support (now at 1.4694). Considering bearish divergence condition in 4 hours MACD, and the fact that 1.5371 target was almost met, break of the channel support will serves as the first alert that whole rise from 1.3654 has completed already and turn focus to 1.4395 support for confirmation.

In the bigger picture, current rise from 1.3654 is treated as part of the consolidation that started at 1.3503, which is correcting whole medium term decline from 2.0158. The question remains on how far such correction will go. We're still preferring that such correction will complete at 1.5371 resistance and a break of mentioned 1.4395 support will solidify this case. In such case, deep decline should be seen which should eventually take GBP/USD through 1.3503/3654 support zone to resume the longer term down trend.

However, based on recent broad based weakness in dollar, firm break of 1.5371 will argue that stronger rise to next cluster resistance of 38.2% retracement of 2.0158 to 1.3503 at 1.6045 and 161.8% projection of 1.3503 to 1.4984 from 1.3654 at 1.6050 would be seen before completion.

GBP/USD