Mid-Day Report: Dollar Remains Pressured, Yen Lower on Fitch Outlook Downgrade

Dollar remains broadly pressured in early US session as data from US provides little support. Personal income rose 0.4% in April while spending rose 0.4%. PCE core rose 0.2% mom, 1.0% yoy and headline PCE rose 2.2% yoy. The data are basically inline with market expectations. Dollar index breaches 75 level as mild strength in commodities and equities. Technically, such development indicates near term reversal in the index and we'd likely see more downside in the greenback ahead.

The Japanese yen weakens mildly today after Fitch cut its outlook on Japan's sovereign debt rating from stable to negative. Fitch warned that the country's "credit worthiness is under negative pressure from rising government indebtedness" and a "stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population aging". Mean there "there is considerable downside risk for the public finances from the still-unknown cost of cleaning up the Fukushima nuclear plant" and "prolonged delays in restoring infrastructure could lead more Japanese corporate to consider relocating their activities abroad, leading to a greater permanent loss of output from the disaster, although it remains too early to gauge this effect".

Other data released today saw Swiss KOC leading indicator rose to 2.3 in May. Eurozone confidence indicators were mixed while M3 money supply rose less than expected by 2.0% yoy in April. Japan core CPI rose 0.6% yoy in April, first rise in two years on a spike in energy and tobacco prices, retail sales dropped -4.8% yoy in April. UK Gfk consumer sentiment improved to -21 in May.

Dollar index's break of 74.96 minor support suggests that rebound from 72.70 low has completed at 76.37, ahead of medium term falling trend line resistance. Intraday bias is back on the downside and deeper fall should be seen to retest 72.70 low first. Break there will confirm resumption of the down trend from 2010 high of 88.70 and should target record low of 70.70 next.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 80.93; (P) 81.50; (R1) 81.86; More.

USD/JPY recovers mildly after dipping to 80.83 earlier today. But with 81.45 minor resistance intact, intraday bias remains on the downside for further decline. As discussed before, choppy recovery from 79.58 should have finished at 82.23 already. Break of 79.58 low will confirm decline resumption and should target 61.8% projection of 85.51 to 79.58 from 82.23 at 78.56 next. On the upside, above 81.45 minor resistance will turn bias neutral and bring recovery. Also, this would delay the bearish case and probably bring another recovery before decline resumption.

In the bigger picture, note that USD/JPY's rebound from 76.40 was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 76.40 for a new record low. In any case, break of 85.51 is needed to revive the case that USD/JPY's down trend has finished. Otherwise, we'll stay cautiously bearish in the pair.

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