Risk currencies strengthened overnight largely responding to a heavy greenback across the board. Despite what appears to be a moderation in expectations ahead of this Friday's Jackson Hole conference, we've yet to see this manifest in US dollar performance, suggesting a greater risk of disappointment in the ensuing period. After moderate losses early this week, the Euro found some upside momentum once again before stalling just shy of $US1.2580, while remaining well-bid against its high-beta counterparts. The EURAUD pair returned above 1.21-figure for the first time since early July with price action approaching technical levels considered to be overbought. The latest bout of EURAUD strength coincides with the relative strength index approaching the '70' levels. Technical analysts believe a reading of '70' or above suggests a reversal to the downside while a reading of '30' and below shows oversold signals. The Australian dollar managed to stave off broad selling earlier in the week with a weaker greenback helping the pair to bounce off technical support of 103.4 US cents to highs of 104.9 US cents.

In a blow for those hoping to get further insight into the European Central Bank's next move, President Mario Draghi has cancelled his scheduled appearance at the Jackson Hole conference later this week, citing increased "workload." It's clear Investors are in high expectancy mode ahead of the next ECB policy decision on Sept 6, which is expected to see the Draghi and Co embark on new easing initiatives to bring down the borrowing cost of Europe's struggling periphery.

Spanish growth statistics released overnight showed Gross Domestic Product fell 0.4 percent in second-quarter to represent a contraction of 1.3 percent in yearly terms. Alarmingly, the report from the National Institute of Statistics also reported employment in the economy decreases at a year-on-year rate of 4.6%, to represent a net reduction of 801 thousand full-time jobs in yearly terms. Nevertheless, a sale of short-term Spanish debt fetched a decidedly lower yield than recent auctions, reflecting positivity over the countries near-term prospects in light of expectations the European Central Bank will begin buying distressed peripheral debt. Spain sold €1.67 billion in 3-months debt at an average yield of 0.95 percent from 2.43 percent on July 24. It also sold €1.93 billion in 6-month debt at of 2.03 percent, down from 3.69 percent. Still, Spain must first seek financial aid and meet "strict and effective conditionality in line with the established guidelines," to qualify for direct assistance from the European Central Bank to bring down borrowing costs.

Across the Atlantic, Economic data was mixed with the Case-Shiller house price index recording a surprise increase in June amid a lower than expected read in U.S consumer confidence. In an interview with Bloomberg, the managing director of Ratings agency Fitch, David Riley said the looming U.S fiscal cliff  is of "real concern," while suggesting the countries triple-A debt rating is at risk of being downgraded by the first half of 2013. Meanwhile, market participants remain transfixed this week's conference in Jackson Hole conference on Friday in the hope Fed Chairman Bernanke signals a third round of quantitative easing.

The day ahead will see regional equities guide currency performance in the absence of major market moving themes locally. Data on construction work done is due for release at 11.30 AEST. At the time of writing the Australian dollar is buying 1.2565.

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