Sterling is so far the best performer this week and is up over 1% against CHF, AUD, JPY, NZD as well as USD. BoE governor King told Parliament's Treasury Committee that a sustained recovery is not guaranteed yet in spite of the strong upside surprise of Q2 GDP reported last week. King believes that there is still the need for stimulus and the debate should be on the appropriate degree of stimulus, not about applying brakes. King stressed that there is challenge of rebalancing the economy away from consumption towards net exports and raising the national saving rate. That would on inflation potentially to a rate that is significantly below the 2 percent target.

Australian dollar, on the other hand, is the worst performer today. Australian CPI rose 0.6% qoq, 3.1% yoy in Q2, higher than Q1's 0.9% qoq, 2.9% yoy, but missed expectation of 1.0% qoq, 3.4% yoy. Both RBA trimmed Mean CPPI and weighted median CPI missed consensus and came in at 2.7% yoy. The lower than expected CPI reading cooled speculation of another RBA rate hike in near term. Indeed, firstly, RBA is expected to be on hold in August before the election campaign ends on August 21. Secondly, considering the inflation outlook, RBA should at lease be on hold for another quarter and wait for Q3 CPI first. There is also prospect that RBA would be on hold for the rest of the year.

Fed will release Beige book report later in the US afternoon. Then RBNZ will take center stage and is widely expected to raise rates by 25bps to 3.00%.

One of the key developments in the financial markets this week is the resumption of position unwinding in gold. Gold on dollar dived through 1166 support level yesterday and has resumed the medium term fall from 1266.5. Meanwhile, Gold on Euro also dropped through 900 psychological level, which coincides with 38.2% retracement of 656.26 to 1051.09 at 900.26. We'll stay bearish in XAUEUR as long as 936 resistance holds and expect the correction from 1051 to extend further towards 61.8% retracement at 807, which is close to 800 psychological level.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 87.16; (P) 87.56; (R1) 88.30; More.

USD/JPY retreats after climbing to 88.11 earlier today but outlook remains unchanged so far. Recovery from 86.26 could still continue but upside is expected to be limited well below 89.14 resistance and bring fall resumption. Below 86.83 minor support will flip intraday bias back to the downside. Further break of 86.26 will confirm that whole decline from 94.97 has resumed and should target 84.81 key support level next.

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 89.14 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.