Mid-Day Report: Dollar Weakens on More Reserve Talk from China

Dollar falls further today as more reserve talk from China. PBoC said in the annual financial stability report release today that there is a need to create a "super-sovereign reserve currency" that's delinked from the economies of the issuers so as to "prevent the deficiencies in the main reserve currency". Without naming the dollar, the report also said that "an international monetary system dominated by a single sovereign sovereign currency has intensified the concentration of risk and the spread of the crisis." The bank also urged IMF to manage part of its members' FX reserves. However, some support is seen in early US session as commodity pares earlier gains. Crude oil reached as high as 71.29 earlier today but is back under 70 level while

Yen crosses are feeling heavy in early US session falling together with treasury yields. Yield of 10 year note is now pressing 3.5 level while yield of 30 year T-bond is pressing 4.3. USD/JPY's break of 95.61 minor support flips intraday bias back to the downside and suggest that recent fall from 98.87 is still in progress. After all, EUR/JPY is still limited below 135.15 resistance. AUD/JPY is staying well below 78.30 resistance. CAD/JPY continues to sustain below medium term rising trend line. We continue to favor more downside in yen crosses, in tandem with treasury yield.

On the data front, US person income rose sharply by 1.4% in May but spending just rose 0.3%. core PCE rose 1.8% yoy, inline with expectation. Swiss KOF leading indicator improved more than expected to -1.65 in Jun. Germany import price fell more than expected by -10.4% yoy in May. New Zealand Q1 GDP dropped more than expected by -1.0% qoq, -2.7% yoy. Japan national core CPI dropped -1.1% yoy in May, inline with expectation. All industry index rose more than expected by 2.6% mom in April.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 95.52; (P) 96.04; (R1) 96.48; More.

USD/JPY's break of 95.61 minor support indicates that rebound from 94.87 has completed and fall from 98.87 is likely still in progress. Further decline should be seen to 94.87 and below to continue such fall. Nevertheless, focus will remain on reversal signal in case of another fall since we're holding on to the view that fall from 98.87 should be contained by 93.84/94.44 support. On the upside, above 96.05 will flip intraday bias back to the upside for 96.56 resistance first.

In the bigger picture, price actions from 99.67 are treated as consolidation in the larger up trend from 87.12 only, in form of triangle pattern. Fall from 98.87 is viewed as the final leg of such consolidation and should be contained above 93.84 support to conclude the consolidation. Break of 98.87 will be an important signal that whole rally from 87.12 is resuming and break of 101.43 will pave the way to next key level at 110.65.

However, note that a break below 93.58/84 support zone will invalidate the bullish case. Instead, it will revive the bearish case that USD/JPY has completed a head and shoulder top (ls: 99.67, h: 101.43, rs: 98.87) and will in turn indicate that whole down trend from 124.43 is still in progress.

Economic Indicators Update

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