Once again the Asia session lacked potential market moving data, however unlike yesterday there was no lack of FX volatility. The US Dollar continued to strengthen versus European and commodity currencies; EUR/USD went from 1.2655 to 1.2620 and USD/CAD traded from 1.0515 towards 1.0570, meanwhile USD/JPY is back knocking on the 84 handle. Yesterday’s phone conversation between Prime Minister Kan and BOJ Chief Shirakawa took the topic of intervention off the table (for now) and traders appear keen to test their resolve. JPY-crosses have declined more rapidly today as risk aversion continues to dominate market sentiment recently; confirmed by the Nikkei 225 which back below the critical 9000 level and is down more than 1.30% at the time of this writing.

The British Pound fell once again after the Times newspaper reported the BOE’s Weale said that the UK economy faces “real risk” and their latest forecasts “put a significant chance on the economy contracting over a 4-quarter period.” This saw the GBP fall from 1.5510 to 1.5425 currently – with little in the way of support until the mid to low 1.53 handle – leading one to ponder if traders are trying to position ahead of the UK July BBA Mortgage Approvals which comes out later today.

Finally, the FX market has awoken to the reality of an Australian Hung Parliament and what it means for the Aussie in the short-term. Yesterday, after gapping lower over the weekend, during the ensuing Asia & European sessions the AUD closed the gap in much preponderance to us. However, once NY traders arrived the market reacted the way we anticipated; negative for the AUD. Today when the Australian markets awoke they were greeted with commentary from Tony Abbott (Liberal/National Party), “it could be some time before the counting is concluded…that means it could be some time before a government emerges” sending the Aussie even lower (AUD/USD from 0.8915 to 0.8865 & AUD/JPY from 75.90 to 75.35). It is now apparent a result could not only take days, but more likely a week or so, and this will continue to weigh on the currency down under.

On the data front out of Europe we have German 2Q GDP, UK July BBA Mortgage Approvals, and Euro-zone June Industrial New Orders.