Sterling was sharply soldoff earlier today after Fitch's comment on UK's fiscal deficit. UK stocks also led European equities lower. Flight to safety was the main movement in financial markets where we saw EUR/CHF took another dive and breached 1.38 level. On the other hand, gold soared and made new record high of 1254.5. Dollar index hovers above 88 level. With an empty calendar, focus will be on when US stocks will drop through recent low with DOW takes out 9774 level.

Rating agency Fitch said today that the scale of the United Kingdom's fiscal challenge is formidable and warrants a strong medium-term consolidation strategy. Fitch urged for faster pace of deficit reduction than set out in the April 2010 budget, and UK will need to cut borrowing by an additional 1% of GDP per year to maintain its AAA rating. Fitch warned that both the size of the deficit currently projected for 2011 and the failure to reduce the deficit to 3 percent of GDP within five years are striking. In response to the report, Treasury said in a statement that Fitch's report makes the case clearly for an acceleration of deficit reduction, particularly in light of events in the euro area sovereign debt market in recent months. And, the government agrees and that is why it is committed to significantly accelerating the reduction of the structural deficit. All eyes will be on Chancellor of the Exchequer George Osborne's emergency budget plan to be announced on June 22.

On the data front, UK BRC retail sales monitor rose 0.8% in May. Japan leading indicator dropped to 101.7 in April. Swiss unemployment rate was unchanged at 4.0% in May. CPI dropped -0.1%, rose 1.1% yoy in May. German trade deficit lower to EUR 13.1b in April. German industrial production rose 0.9% mom in April. Canada housing starts dropped to 189k in May.

GBP/CHF drops sharply today, on the back of Sterling's weakness as well as Swissy's strength. The development suggests that choppy rebound from 1.5825 is finished at 1.7073 ahead of 1.7110 resistance. Sustained break of 4 hours 55 EMA (now at 1.6560) will affirm this case and target a retest on 1.5825 support next.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4382; (P) 1.4472; (R1) 1.4557;

GBP/USD's recovery was limited by 4 hours 55 EMA and break of 1.4387 suggests that fall fro 1.4769 is resuming. Intraday bias is back on the downside for 1.4230 low first. Break there will down trend resumption to 61.8% projection of 1.5521 to 1.4230 from 1.4769 at 1.3971 next. On the upside, above 1.4561 minor resistance will turn intraday bias neutral again. But after all, even in case of another rise, upside is expected to be limited below 1.4769 resistance and bring fall resumption finally.

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 23:01 GBP BRC Retail Sales Monitor May 0.80% -- -2.30% 23:50 JPY Japan Money Stock M2+CD Y/Y May 3.10% 2.80% 2.90% 05:00 JPY Leading Index Apr P 101.7 102.5 102.7 101.9 05:45 CHF Unemployment Rate May 4.00% 3.90% 4.00% 06:00 JPY Eco Watchers Survey: Current May 47.7 50.8 49.8 06:00 EUR German Trade Balance (EUR) Apr 13.1B 14.1B 14.3B 07:15 CHF CPI M/M May -0.10% 0.00% 0.90% 07:15 CHF CPI Y/Y May 1.10% 1.20% 1.40% 10:00 EUR German Industrial Production M/M Apr 0.90% 0.70% 4.00% 12:15 CAD Housing Starts May 189K 205.0K 201.7K 12:25 USD Fed Duke Speaks in Hollywood Florida -- -- 13:10 USD Fed Evans Speaks in Chicago Illinois -- -- 23:00 USD Fed Hoenig Speaks in Kansas City Missouri -- --