Yen failed to ride on earlier strength and weakens sharply in early US session as three month Lib or dropped below dollar for the first time since August. LIBOR for three month yen loans dropped to 0.251% comparing 0.252% for dollar loans. The greenback can now declare that it's not the most attractively priced currency for carry trades any more. On the other hand, Euro is slightly softer as ECB president Trichet said that will continue to provide euro-zone banks with as much liquidity as they need through its main refinancing operations.

ECB left benchmark interest rate at 1.00% as widely expected. Trichet said in the press conference that the bank will retain one-month refinancing operations at a fixed rate with full allotment for as long as is needed. Meanwhile, offerings of three-month cash will return to variable interest rates on April 28, to avoid significant spreads between the ECB's benchmark rate and the rate at which money is allotted. Regarding the economy, Trichet said that euro-zone's economic recovery remains on track but again warned that it could be uneven. Interest rates remain appropriate and inflation expectations remain firmly anchored.

Bank of England left rates unchanged at historical low of 0.5% today. The GBP 200b asset purchase program was also on hold for a second month. No detail was revealed in today's short statement and markets will look forward to the minutes to be published on March 17 instead.

Dollar continues to recovery against major currencies after jobless claims dropped back to 469k. Pending home sales came in much worse than expected by dropping -7.6% mom in January. Factory orders rose 1.7% in January. Canadian dollar is mildly lower after data showed building permits dropped -4.9% mom in January. Ivey PMI also missed expectations and rose to 51.9 in February only. Eurozone Q4 GDP was unrevised at 0.1% qoq, -2.1% yoy. After all, markets are still in tight range as traders are holding their bets ahead of tomorrow's Non-Farm Payroll release.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 88.19; (P) 88.59; (R1) 88.86; More.

USD/JPY's strong recovery and break of 88.63 minor resistance suggests that an intraday low is in place at 88.13 and turns bias neutral. Nevertheless, note that as long as 89.51 resistance holds, fall from 92.14 is still expected to continue. Below 88.13 will target 87.36 support next. Break there will confirm that whole rebound form 84.81 is finished at 93.74. Also, in such case, the larger down trend is likely resuming for a new low below 84.81. However, note that strong break of 89.51 resistance will suggest that a short term bottom is at least formed and stronger rebound should then be seen to near term falling trend lines resistance (now at 91.69).

In the bigger picture, note that USD/JPY is now back below 55 days EMA (now at 90.44) and continue to stay below 55 weeks EMA (now at 93.42). The bearish case that longer term down trend from 124.13 is still in force remains in favor. Break of 87.36 support will solidify this case and target a new low below 84.81, possibly to 1995 low of 79.5. On the upside, note that decisive break of 93.74 resistance will also have 55 weeks EMA (now at 93.42) firmly taken out too and that will be an important signal that whole long term down trend from 2007 high of 124.13 is over. In such case, focus will turn to 101.43 resistance for confirmation.

/<= border=0 alt=USD/JPY 4 Hours Chart />