Markets remained transfixed on the economic plight of Southern Europe overnight with the focus once again on Spain's ability to regain economic composure. Although markets - for the most part - have priced in a successful bid by Greece's New Democracy Party to form a coalition government, Spain's economic uncertainties have now taken priority with Spanish 10 yr yields surging above the psychological milestone of 7 percent to another euro-era high of 7.16 percent. This 7 percent level is particularly important for investors which saw Greece, Ireland and Portugal sharply deteriorate as borrowing cost became too great to raise capital - all of whom went on to requested financial aid. Although Spain has already sought financial assistance for the troubled banking sector, diminished appeal for Spanish government debt may see a sustained increase in borrowing costs suggesting a sovereign bailout is just around the corner. With almost a quarter of the working population unemployed, the fear is Spain's current banking crises may morph into something more sinister.

We saw a notable divergence between the Euro and other risk associated currencies with commodity bloc currencies strengthening over the latter part of U.S trade while the Euro has dropped near 200 pips over the last 24-hours. At the time of writing the Euro is buying $US1.2570. After to slipping to lows of 100.56 US cents, the Australian dollar resumed its north-bound trajectory with price action making a break back above the 101 US cent level coinciding with strong U.S equities, which bounced back from earlier losses. For now, the local unit remains in a favorable position to maintain gains above its 55 day moving average and short-term support at 100.9 US cents which we anticipate will contain any losses during local trade before we're once again at the mercy of headline risk from Europe.

The focus will now turn to the release of the RBA minutes for June which saw Stevens and Co cut benchmark interest rates by 25bps. The ensuing statement showed moderate domestic growth, ongoing economic turmoil abroad amid subdued inflation outlook afforded scope for a more accommodative stance of monetary policy. Despite the RBA's recent policy easing initiatives, recent feedback from Glenn Stevens has taken a realistic tone suggesting a need for local industry to adapt to changes in global conditions with emphasis on the importance of business productivity improvement, particularly those sectors struggling under the weight of a high Australian dollar. At the time of writing the Aussie dollar is buying 101.15 US cents.