Daily Report: Dollar Maintains Post FOMC Gains

Asian equities follow US stocks lower today after Fed Bernanke provided no hint on QE3 overnight as QE2 ends in June. Fed offered a less optimistic view on the economy with downward revision in GDP projection and upward revision in unemployment projection. Also, sentiments are hurt a bit by poor HSBC China PMI reading today, which dropped to a 11-month low of 50.1 from May's final reading of 51.6. Overall mild risk aversion and lack of QE3 talk sends dollar higher against most major currencies Sterling remains the weakest currency this week and hovers around record low against Swiss Franc after BoE talked about the possibility of extending the quantitative easing program in the minutes released yesterday.

To recap, Fed left federal funds rate unchanged at historical low of 0-0.25% yesterday and kept that language on keeping rates at low for "an extended period." QE2 will end in June as expected and continue to reinvest principal payments from the holdings. In the second post meeting press conference, Bernanke signaled there is no QE3 as the current situations are very different from last August. Deflation is now a "non-trivial risk" while the job markets has been improving even though the pace is "frustratingly low". Though, Bernanke still kept the option open as he noted that part of the slowdown in the economy is "temporary" but part "maybe longer". And, there "maybe some of the headwinds that are concerning us, like the weakness in financial sector, problems in the housing sector - some may be stronger and more persistent than we thought."

Fed also published their updated forecasts. For 2011, GDP is expected to grow 2.7-2.9%, revised down from prior projection of 3.1% to 3.3%. That's the second time Fed lowered growth projections. For 2012, GDP is expected to grow 3.3-3.7%, also lowered from prior projection of 3.5-4.2%. Regarding unemployment, for 2011, unemployment rate is projected to be at 8.6-8.9% in Q4. That's higher than April's projection of 8.4-8.9%. For 2012, unemployment is projected to be 7.8-8.2%, also, higher from April projection of 7.6-7.9%. Regarding core inflation, core PCE is projected to be at 1.5-1.8% in 2011, higher than April projection of 1.3-1.6%. For 2012, core PCE is projected to be at 1.4-2.0%, also higher than April forecast of 1.3-1.8%.

ECB President Trichet the debt crises in Eurozone and the contagion threat are flashing "red" warning signals. And, the most serious threat to financial stability "stems from the interplay between the vulnerabilities of public finances in certain EU member states and the banking system, with potential contagion effects across the Union and beyond." And, "the difficulties in programme implementation in some countries pose a significant challenge for the financial system." German Chancellor Merkel warned that full-scale debt restructuring in Greece would have "completely uncontrollable" effects on financial markets and could threaten other countries' stability, including banks, creditors as well as institutions that sold insurance policies against a default. Merkel also insisted that the contribution by private investors in Greece second bailout must be "substantial ... and measurable." Greek Prime Minister Papandreou now targets to get parliamentary approvals for austerity measures by June 28 and then get EU approval for the EUR 12b funding to rollover maturing debts on July 3.

On the data front, Australian conference board leading indicator rose 0.1% in April. Swiss trade surplus was wider than expected at CHF 3.31B. Eurozone flash PMIs will be released and are expected to drop further in June. From UK, there will be CBI reported sales and BBA mortgage approvals. From US, initial jobless claims and new home sales will be featured.

Dollar index's recovery from 74.51 is still in progress and is back above 75 level. We'll stay neutral in the index for the moment. On the one hand, it's clearly still limited below medium term falling trend line resistance from 88.70 and thus, there is no indication of reversal yet. A break below 74.51 support will likely send dollar index through 73.50 support towards 72.69 low. On the upside, break of 76.36 resistance will now affirm the case of medium term reversal and should turn outlook bullish for stronger rise. 

GBP/JPY Daily Outlook

Daily Pivots: (S1) 128.49; (P) 129.51; (R1) 130.05; More

GBP/JPY's break of 128.91 suggests that recent decline has resumed and intraday bias remains on the downside for 100% projection of 140.02 to 130.27 from 135.11 at 125.36 next. On the upside, above 130.53 will turn bias neutral again. But after all, near term outlook will remain bearish as long as 132.32 resistance holds and we'd expect whole decline from 140.02 to resume sooner or later.

In the bigger picture, choppy fall from 163.05 is treated as second leg of the consolidation pattern that started at 2009 low of 118.81. The failure to sustain above 55 weeks EMA and subsequent decline suggests that rebound from 122.15 was possibly just a correction. That is, fall from 163.05 is still in progress for another low below 122.15. Outlook will remain cautiously bearish as long as 135.11 resistance holds. Nevertheless, we'd be watching for reversal signal once again around 118.81 (2009 low). On the upside, decisive break of 140.02 resistance will now confirm medium term reversal and should start the third leg of consolidation pattern from 118.81 for 163.05 resistance and above.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
0:00	AUD	Conference Board Leading Index Apr	0.10%		0.40%	-0.10%
6:00	CHF	Trade Balance (CHF) May	3.31B	1.68B	1.52B	1.44B
7:30	EUR	German PMI Manufacturing Jun P		57	57.7
7:30	EUR	German PMI Services Jun P		55.7	56.1
8:00	EUR	Eurozone PMI Manufacturing Jun P		53.8	54.6
8:00	EUR	Eurozone PMI Services Jun P		55.3	56
8:30	GBP	BBA Loans for House Purchase May		30.0K	29.4K
10:00	GBP	CBI Reported Sales Jun		13	18
12:30	USD	Initial Jobless Claims		410K	414K
14:00	USD	New Home Sales May		310K	323K
14:30	USD	Natural Gas Storage		91B	69B