Yen retreats mildly today to digest yesterday's sharp gain but after all, the trend should be formed as risk sentiments reversed since June. Among the major currencies, Aussie and Kiwi, as the highest yielders, are hardest hit so far this month, which is normal. Sterling, on the other hand, is catching up this week on speculations that BoE will expand the quantitative easing campaign today even though rates are expected to be unchanged at 0.50%. Markets see a strong possibility that BoE will expand the asset purchase program by another GBP 25b to GBP 150b in total after launching it in March with GBP 75b and adding GBP 50b in May. While the worst of recession in UK may be past, the talk of recovery is somewhat premature at this point as situation in the employment market is still worsening. One important thing to note is that while Sterling weakens much this week, the strength is EUR/GBP is rather unconvincing so far and will look into today's announcement from BoE to guide the direction.

Another weakest currency is Aussie which has confirmed it's reversal against yen by diving through the medium term trend line support this week. The employment report released from Australia today was mixed on the surface but disappointing in details. Unemployment rate climbed less than expected to 5.8% in Jun but contraction in job market exceeded expectation at -21.4k. However, note that the major part of job losses was found in full-time positions with -21.9k while part-time job changes was nearly flat. May's number was also revised down from -1.7k to -8.5k.

Other data released today saw German Trade Balance at 9.6b in May. German CPI was unrevised at 0.4% mom, 0.1% yoy. Looking ahead, UK Trade Balance, Canadian housing starts, US initial jobless claims and Wholesale Inventories will be released.

Looking at the technical picture, reversal of market sentiments is clear with the confirmed head and shoulder top in DOW and S&P 500. Nikkei's 129 pts fall today also sent it well below 55 days EMA which affirms the view that it has topped out at 10170 in June and we're looking at deeper fall to 8224/8967 fibonacci support zone at least. Crude oil dived sharply this week after making at top at 73.23 last week and is now taking a breathe above 60 level. Nevertheless, the whole rebound from 33.2 should have completed and we're looking at more downside in crude oil, at least to 50 region. The above developments are inline with the reversal view in yen.

The picture in dollar is less clear. USD/JPY's strong break of 93.53 key support yesterday invalidated the consolidation view and indicates that the pair has topped out in medium term. More importantly, the development maintains the long term down trend. Dollar's strength against Euro and Swissy is also unconvincing as it still bounded in staying in the tight range established earlier this week. Dollar index is still staying below 80.89, not to mention key resistance of 81.47. We'd now expect weakness of USD/JPY to continue to limit general rebound in dollar and thus keep the dollar index in range for a while to extend the consolidation. We'd wait for a firm break of 81.47 resistance to confirm the underlying broad based strength in the greenback.