Dollar and yen retreat mildly into European session as markets stabilize from yesterday's strong rally. Asian stocks gapped lower following -2.18% fall in DOW, with Nikkei dropping -2.64% to 9093 but after all, it's still holding above 9000 psychological level. Dollar and yen edged higher in Asia but lost momentum and turned sideway. Note that as mentioned before, EUR/USD, GBP/USD and AUD/USD are still staying inside recent rising channel in spite of yesterday's sharp pull back. There is no confirmation of topping in these pairs yet. The most significant development was indeed USD/JPY's break of 95.61 support, which should have confirmed the head and shoulder top reversal pattern. Having said that, the Japanese yen will likely outperform the greenback in case of further risk aversion trades in the markets.

Dollar index is back above mentioned 82.19/62 long term cluster support zone and touching of 82.87 minor resistance suggests that a temporary low is formed. Some more recovery could be seen towards 4 hours 55 EMA at 83.34. But strong resistance will likely be seen between 83.50 and 84.46 and bring fall resumption that eventually send the index below mentioned 82.19/62 support zone again. A strong break above 84.46 in the index is needed to confirm that the index has bottomed out after a false break of 82.19/62. Otherwise, we'd maintain the short term bearish view that the index will drop further to 100% projection of 89.62 to 82.63 from 86.87 at 79.88 before concluding the decline between 77.69 long term support and 80 psychological level.

Dollar

On the data front, combined PPI in Switzerland is expected to have gained +0.6% mom in April after sliding -0.5% mom a month ago due to increase in import prices after SNB's prevention of Franc's appreciation. On annual basis, the regain probably declined -2.8%, same level as last month. ECB will release the monthly bulletin later today.

US' PPI should have increased +0.1% mom in April following a sharp fall of -1.2% in the previous month as energy prices picked up and decline vehicles sales moderated. From a year-ago, the gauge probably plunged -3.9% after dropping -3.5% in March. Core PPI should have risen +0.1% mom (March: 0%)and +3.4% yoy (March: +3.8%) in April. Initial jobless claims might have risen to 610K for the week ended May 9, bring the 4-week average slightly down to 623K

USD/JPY Daily Outlook

USD/JPY's break of 95.61 support should have confirmed that a head and shoulder top reversal pattern has completed (ls: 99.67, h: 101.43, rs: 99.71). Having side that, whole rise from 87.12 should have completed at 101.43 and further decline should now be seen to 61.8% retracement of 87.12 to 101.43 at 92.58 next. On the upside, above 96.67 minor resistance will turn intraday outlook neutral first and bring some recovery. But upside should be limited below 97.83 resistance and bring fall resumption.

In the bigger picture, medium term outlook in USD/JPY remains bearish as USD/JPY is still limited well below trend line resistance (124.13 to 101.65) as well as 55 weeks EMA. Rise from 87.12, which is treated as a correction in the down trend from 124.13, should have completed with bearish divergence condition in daily MACD and RSI, with a head and shoulder top pattern. Further decline should now be seen to retest 87.12 low first. Break there will confirm down trend resumption for next key support level at 79.75 (95 low). On the upside, though, above 87.83 will argue that price actions from 99.67 might be forming a triangle consolidation only and rise from 87.12 has not completed yet.

USD/JPY

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
07:15CHFSwiss Combined PPI M/M Apr0.60%-0.50%
07:15CHFSwiss Combined PPI Y/Y Apr-2.8-2.80%
08:00EURECB Monthly Bulletin----
12:30USDPPI M/M Apr0.10%-1.20%
12:30USDPPI Y/Y Apr-3.90%-3.50%
12:30USDPPI Core M/M Apr0.10%0.00%
12:30USDPPI Core Y/Y Apr3.40%3.80%
12:30USDInitial Jobless Claims--601K
14:30USDNatural Gas Storage100B95B