Sterling fails to maintain earlier gains in spite of better than expected data released from UK today. Mortgage approvals rose slightly to 51k in May while public sector net borrowings rose less than expected to GBP 16b in may. Nevertheless, markets hesitated to push sterling further through fibonacci resistance against dollar as stocks tread water. European stocks fluctuate in tight range without any direction which dollar manages to pare some of earlier losses. Gold, on the other hand, makes new record high above 1260 today. Other data released today saw German PPI rose 0.3% mom, 0.9% yoy in May. Canada international securities transactions rose strongly to CAD 12.38b in April. Leading indicator rose 0.9% mom in May.

BoJ minutes for May meeting showed that policy makers were concerned that Europe market destabilization might cause strains in Japan's financial conditions. Some members underscored the importance of bearing in mind the possibility that financial conditions in Japan might be forced to tighten through various economic and financial channels if European financial markets became more unstable and this resulted in an appreciation of the yen and weaker stock prices.

Gold's rally today confirms that medium term up trend has resumed and should now be targeting 1300 psychological first and then 100% projection of 931. 3 to 1227.5 from 1044.5 at 1340.7 next. Focus will indeed be on whether such rally would be accompanied by reversal in stocks, which will in turn, trigger some strong rebound in dollar on risk aversion.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4698; (P) 1.4768; (R1) 1.4892;

Intraday bias in GBP/USD is turned neutral as it retreats sharply from intraday high of 1.4885. Note that recovery from 1.4230 is expected to be limited by 100% projection of 1.4230 to 1.4769 from 1.4346 at 1.4885. Break of 1.4644 minor support will suggest that such recovery is completed and flip intraday bias back to the downside. Further break of 1.4346 will confirm this case and target a retest of 1.4230 low next. However, decisive break of 1.4885 will target 1.5053 resistance next.

In the bigger picture, our bearish view remains unchanged. Fall from 1.7043 is tentatively treated as resumption of the whole down trend from 2007 high of 2.1161. Such fall should target 61.8% projection of 2.1161 to 1.3503 from 1.7043 at 1.2310 after taking out 1.3503 low. On the upside, break of 1.5521 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 Cabinet Office Monthly Economic Report -- -- 23:50 JPY BoJ Meeting Minutes -- -- 06:00 EUR German PPI M/M May 0.30% 0.10% 0.80% 06:00 EUR German PPI Y/Y May 0.90% 0.80% 0.60% 08:30 GBP Major Banks Mortgage Approvals May 51K 49K 47K 50K 08:30 GBP Public Sector Net Borrowing (GBP) May 16.0B 18.0B 10.0B 08:30 GBP M4 Money Supply M/M May P 0.00% 0.20% 0.00% 08:30 GBP M4 Money Supply Y/Y May P 2.80% 3.10% 3.30% 3.20% 09:30 CHF KOF Institute Economic Forecast -- -- 12:30 CAD International Securities Transactions (CAD) Apr 12.38B 3.500B -0.616B 12:30 CAD Leading Indicators M/M May 0.90% 0.80% 0.90%