USD/JPY dives through 86 level again today following fall in yield on two-year notes to record low of 0.5301 on speculation that Fed will restart the quantitative easing program next week. Meanwhile, dollar remains under tremendous pressure against Euro and Sterling, where we see EUR/USD breaches 1.32 while GBP/USD reaches 1.596. Nevertheless, strength in commodity currencies is relatively limited with Aussie and Loonie both held below yesterday's low.

Data from US saw personal income and spending rose 0.0% in June, missing expectation of 0.3% and 0.2% rise. PCE core and PCE deflator both came in at 1.4% yoy, slightly above expectation. Eurozone PPI rose 0.3% mom, 3.0% yoy in June. UK PMI construction dropped much more than expected to 54.1 in July. Swiss CPI unexpectedly moderated to 0.4% yoy in July.

Former BoE deputy governor John Gieve said he expects BoE to no nothing this month and in Autumn. However, he expects when BoE starts to raise rates, the bank will do it faster than most other forecasters seem to think. Rates could climb to 2.5% to 3% quite quickly when UK gets solid growth over the quarters. This is in sharp contrast to markets expectation that BoE would just inch up to 1% in Q2 of 2011.

RBA left the OCR unchanged at 4.5% for the 3rd consecutive month. Few surprises were seen in the accompanying statement. The overall tone was similar to that of July while the economic outlook was also unchanged. The RBA appeared comfortable with current levels of interest rates and economic backdrop both at home and in overseas warrants the central bank to take a wait-and-see stance in coming months. We expect further rate hike is likely but there's no urgent need in the near-term. More in RBA Left OCR Unchanged At 4.5%, Taking A Wait-And-See Stance. However, Aussie was weighed down mildly by weak data. Building approvals dropped for the third month by -3.3% mom in June while retail sales grew less than expected by 0.2% mom. The data added more evidence that RBA's six rate hikes between October and May are having an effect on the economy. It also solidify speculations that RBA would remain on hold, possibly throughout the year. Though, Aussie's trend will continue to be driven mainly by risk sentiments.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 86.25; (P) 86.56; (R1) 86.81; More.

USD/JPY's break of 85.98 indicates that recent fall has resumed and put intraday bias back to the downside. As discussed before, current decline from 94.97 is expected to extend further to retest 84.81 low next. On the upside, above 86.87 minor resistance will turn intraday bias neutral again. But after all, break of 88.11 resistance is still needed to indicate bottoming. Otherwise, outlook will remain bearish.

In the bigger picture, the corrective three wave structure of the rise from 84.81 to 94.97 suggests that whole down trend from 2007 high of 124.13 is still in progress. Fall from 94.97 is tentatively treated as resumption of such down trend and should extend beyond 84.81 low. Break of 84.81 will target next key level of 79.75 (1995 low). On the upside, break of 88.11 resistance will indicate that fall from 94.97 is possibly completed and bring stronger rebound. However, note that break of 94.97 resistance is still needed to be the first sign of medium term reversal. Otherwise, we'll stay bearish.