Risk Appetite Lost Steam, Focus On BOE Inflation Report

Risk appetite is losing some steam in Asia today even though S&P 500 managed to close above 1400 level for the first time since May overnight.

Euro is struggling to find sustainable buying to extend last week's rebound while other major currencies also weakened mildly against dollar and yen in Asian session. S&P lowered Greece's CCC rating outlook to negative from stable. The rating agency noted that it reflects the "possibility of a downgrade if Greece fails to secure the next disbursement of the EU/IMF Program." And the rating agency noted that "deepening contraction" in Greece implies a "high likelihood" that additional financing of as much as EUR 7b is needed this year. Meanwhile, S&P also noted that such estimate could be reduced if the target deficit reduction for Greece or other burdens could be eased.

Earlier this week, it's reported that IMF is pushing Eurozone leaders to lower Greece's burden, possibly in form of lowering interest rates on loan to Greece, ECB and others to have another 30% haircuts.

In US, Boston Fed President Eric Rosengren indicated a large scale easing program is needed to stimulate growth and the job market in the US. At an interview with the CNBC Rosengren, a voter in the FOMC in 2013, called for an "open-ended" QE program of "substantial magnitude". The program "needs to be substantial enough that it offsets some of the shocks that we're getting from abroad and some of the concerns that people have with how weak the world economy has been". His comments, together with Fed chairman Ben Bernanke's comments earlier this week, raised further hopes that the Fed would soon implement QE3 as a boost of the US economy.

BoE quarterly inflation report will be a major focus today. The central bank is expected to lower its growth and inflation projections and could pave way for expanding the asset purchase program further. BoE resumed the bond buying program last month by launching a 4-month, GBP 50b expansion. But recent economic data has somewhat shown deterioration in UK's economy, with -0.7% qoq contraction in Q2 GDP. EUR/GBP will be a cross to watch today.

The cross rebound from 0.7755 as markets are hoping actions from ECB to lower peripheral yields. Receding safe haven flow into sterling drove EUR/GBP high in the past two weeks. Technically, it's still staying well inside a near term falling channel and thus, there is no change in the larger bearish outlook. But as it's already near to the boundary of the channel, traders will soon make a clear decision on which direction to push EUR/GBP further. In short, we'll see whether EUR/GBP could power through 0.8 psychological level, or reversal from there soon.

On the data front, New Zealand building permits unexpectedly dropped -2.5% mom in July. Australia home loan rose less than expected by 1.3% in June. Japan eco watchers current reading improved to 44.2 in July. Swiss SECO consumer confidence, German trade balance and industrial production, US non-farm productivity and unit labor costs will be released today.