Market sentiments continue to be weighed down by worry on China growth and Eurozone bank liquidity. European stocks are broadly lower with major indices down over -2% at the time of writing. Japanese yen is the major winner today and rose over 2.54% against Aussie and Kiwi. Dollar managed to benefit from risk aversion and rebounds against major currencies except yen and swissy. Nevertheless, strength in the greenback is not strong even to send the dollar index through 86.42 resistance yet and we are cautiously neutral in dollar.

Investors are cautious ahead of the expiration of the EUR 442b one year loans later on Thursday. ECB is not expected to renew the program and would likely replace the one-year liquidity by with three-month liquidity. There are speculations that Spanish banks are lobbying the ECB to ease the impact of the expiration. Some analysts pointed out that a large roller would benefit German bund and peripheral bonds which would widen the spread again. Three-month Euro Libor rose to an over nine month high above 0.76%.

Conference Board revised the leading indicator for China in April sharply down from 1.7% gain to 0.3% gain, worst reading in five months. Conference Board explained that previous reading contained a calculation error on floor space on which construction began. The indicator is designed to capture growth outlook over the coming six months. The sharp downward revision triggered worry that China's recovery has indeed peaked already. Asian stocks were broadly lower, led by -4.3% fall in Shanghai Composite. MSCI Asia Pacific index dropped -1.4%.

Data released today saw Canada RMPI dropped much more than expected by -7.2% in mom in May while IPPI rose 0.3%. Eurozone confidence indicators were generally steady in June. . Unemployment rate in Japan unexpectedly rose to 5.2% in May. Housing spending dropped sharply by -0.7% yoy in May. Industrial production dropped -0.1% mom in May.

Take a look at another yen cross, CAD/JPY, dived sharply to as low as 84.44 so far today. As noted before, consolidations from 82.23 should have finished at 90.01 already. Current decline is tentatively treated as resumption of the whole medium term fall from 94.46 and is expected to break 82.23 and have a take on 80 psychological level in early part of Q3. We'll stay bearish in the cross as long as 86.53 resistance holds.

Dollar index rebound strongly today but it's still held below 86.42 resistance. We'll remain neutral for the moment. Fall from 88.70 is treated as a correction in the medium term up trend from 74.19. Another fall could not be ruled out yet and break of 85.09 will target trend line support at 83.22. Nevertheless, break of 86.42 will argue that such correction is already finished after hitting 85.14 support. In such case, outlook will be turned bullish for a test on 88.70 high instead.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 109.27; (P) 110.04; (R1) 110.47;

EUR/JPY drops to as low as 107.83 today and the break of 108.06 confirms down trend resumption. At this point, intraday bias remains on the downside and further decline should be seen to 61.8% projection of 169.96 to 112.10 from 139.21 at 103.45 next. On the upside, above 109.52 minor resistance will turn intraday bias neutral and bring recovery. But upside should be limited below 113.40 resistance and bring fall resumption.

In the bigger picture, fall from 139.21 is treated as resumption of long term down trend from 2007 high of 169.96 and should target 61.8% projection of 169.96 to 112.10 from 139.21 at 103.45 which is close to 100 psychological level. Though, we'd expect strong support between 2000 low of 88.96 and 100 psychological level to contain downside and bring reversal. On the upside, break of 119.64 support turned resistance is needed to be the first signal of medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised 23:30 JPY Unemployment Rate 5.20% 5.00% 5.10% 23:30 JPY Household Spending Y/Y May -0.70% 0.30% -0.70% 23:50 JPY Industrial Production M/M May P -0.10% 0.00% 1.30% 23:50 JPY Industrial Production Y/Y May P 20.20% 20.30% 25.90% 06:00 CHF UBS Consumption Indicator May 1.737 -- 1.763 1.728 08:30 GBP Mortgage Approvals May 50K 51.0K 49.9K 09:00 EUR Eurozone Economic Confidence Jun 98.7 98.1 98.4 09:00 EUR Eurozone Consumer Confidence Jun F -17 -17 -17 -18 09:00 EUR Eurozone Industrial Confidence Jun -6 -6 -6 09:00 EUR Eurozone Services Confidence Jun 4 3 3 12:30 CAD Industrial Product Price M/M May 0.30% 0.30% 0.30% 12:30 CAD Raw Materials Price Index M/M May -7.20% -0.30% 1.70% 13:00 USD S&P/Case-Shiller Composite-20 Y/Y Apr 3.40% 2.30% 14:00 USD Consumer Confidence Jun 62.5 63.3