* USD/JPY trimmed losses from a 3-day low of 122.90 struck in late Asian trading to 123.33. There was talk of further option activity in the pair, with 120-125 strike strangles and straddles with 2-3 week expiries being offered overnight. But the bias for USD/JPY seems on the downside, with some specs looking for further weakness and perhaps below 123.00 before higher again.
Rumors of stops below might chime with 122.50-70 rumored stops. The outlook is mixed to slightly bullish.

Support: 122.90 (overnight low), 122.50 (Gann 50-point pivot; targets: 122.00/123.00), 122.41 (20-day moving average), 122.07 (60-day moving average), 121.05 (Gann 50-point pivot; targets: 120.55/121.55), 120.53 (May 4 low), 119.65 (Gann 50-point pivot; targets: 119.15/120.15), 119.00 (38.2% Fibonacci retracement level of the August 1998-December 1999 downtrend).
Resistance: 123.56 (overnight high), 124.00 (Gann 50-point pivot; targets: 123.50/124.50), 124.03 (May 16 high), 124.35 (April 27 peak), 125.50 (Gann 50-point pivot; targets: 125.00/126.00), 126.84 (April 2 high; 29-month high).

* Unable to penetrate the resistance of its 20-day moving average at 0.8891 and lacking the support of Wednesday's large customer buy order, EUR/USD fell into negative territory from a 1-week high of 0.8881. Sizeable bids were seen out of Hong Kong with French and Swiss names also involved. However, the gains could not be sustained and the pair had dipped back to an intraday low of 0.8816 by the European midday. Sell stops are reported below the 0.8800-10 region and this area will be key for European traders.
Inflation remains a top priority in the euro zone after the ECB's ill-timed 25-bp rate cut was followed by evidence of increasing inflation. Eurogroup Chairman and Belgian Finance Minister Didier Reynders said there was a "new concern" among policy makers over inflation in the euro-zone but expressed his confidence that inflation would fall back to a "good level" by the third quarter. But Spanish Economy Minister Rodrigo Rato countered by saying that the euro-zone was not facing any severe inflation pressures despite the release of higher-than-expected CPI data for April on Wednesday.
The outlook is bearish on long liquidation.

Support: 0.8807 (overnight low), 0.8790 (38.2% Fibonacci retracement level of the June-October downtrend), 0.8695 (April 18 low; 4-1/2-month low).
Resistance: 0.8848 (61.8% Fibonacci retracement level of the Nov. 27-Jan. 5 uptrend), 0.8881 (overnight high), 0.8891 (20-day moving average), 0.8931 (200-day moving average), 0.8963 (50% Fibonacci retracement level of the June-Oct. downtrend), 0.8979 (61.8% Fibonacci retracement level of the July 26-Oct. 26 downtrend), 0.9091 (April 5 peak).

* EUR/JPY fell within Wednesday's range. The cross currency is expected to consolidate around the 20-day moving average at 108.82 unless the EUR/USD drops hard. The outlook is mixed, with downside risk.

Support: 108.42 (overnight low), 106.80 (May 11 low), 106.69 (April 18 low; 7-week low), 105.80 (38.2% Fibonacci retracement level of May 1999-October 2000 downtrend), 104.15 (Feb. 16 trough; year's low).
Resistance: 109.33 (overnight high), 108.82 (20-day moving average), 109.23 (100-day moving average), 109.69 (60-day moving average), 111.02 (50% Fibonacci retracement level of May 1999-October 2000 downtrend), 112.03 (50% Fibonacci retracement level of the January 1999-October 2000 downtrend), 112.15 (April 27 peak), 113.71 (April 4 high; 17-month high).

* GBP/USD fell into the red from a nine-day high of 1.4323. Traders ignored the U.K. economic data, focusing instead on the declining EUR/USD. Retail sales were much stronger than expected in April, with volumes up 0.6% on the month and 5.9% on the year, against analysts expectations of a 0.3% monthly and a 5.3% annual rise. The main driver behind the increase was non-food sales and, in particular, a record-rise in textiles, clothing and footwear sales.
The outlook is bearish.

Support: 1.4285 (overnight low), 1.4143 (May 11 low; 4 1/2-month low), 1.3966 (Nov. 24 trough).
Resistance: 1.4317 (20-day moving average), 1.4323 (overnight high), 1.4376 ing (60-day moving average), 1.4402 (61.8% Fibonacci retracement level of Nov.-Jan. uptrend), 1.4534 (50% Fibonacci retracement level of the Nov.-Jan. rally).