A succession of negative themes led to deep losses across the risk spectrum overnight with market participants turning to the perceived safety of the U.S dollar. The HSBC China manufacturing PMI index set the stage for losses yesterday showing further moderation in activity from the world's second largest economy. Meanwhile, European markets struggled under the weight of continued negativity from Southern Europe while official manufacturing PMI data for both Germany and the Euro-Zone also failed to inspire, both of which slipped further into contraction territory. News that the implementation of the permanent rescue fund (European Stability Mechanism) will be delayed also proved to be a hindrance for markets, with Germany's Federal Constitutional Court asking for further time to evaluate the potential for lawsuits.

Across the Atlantic, U.S markets ran with Europe's negative lead with large scale losses noted across equity markets. U.S stocks recorded significant losses with the DOW and S&P finishing down 1.96 and 2.23 percent respectively. Following on from the poor manufacturing data from China and Europe, the Philadelphia Fed Manufacturing index also provided a less-than-inspiring outlook with the index dropping 16.6 index points in June. Similarly, the Markit U.S manufacturing index failed to meet expectations recording a level of 52.9 from a previous reading of 54.

A day after announcing an extension to its bond buying program 'operation twist', a strong U.S dollar reversal suggests markets are recalibrating expectations the Fed will take further steps to support the economy. At first glance, it appeared the Fed - at the very least - appeased market expectations in the ensuing period of yesterday's FOMC decision, but the absence of initiatives such as further quantitative easing has called into question the willingness of the Fed to embark on such measures. In a press conference overnight Fed Chairman Bernanke said the decision to increase stimulus will be contingent on jobs with more action needed without sustained improvement in the labor market.

The Australian dollar has maintained a consistent downward trajectory for most of the evening with previous areas of support easily broken to coincide with solid losses from U.S markets. Price action has displayed supportive behavior around the 100.25 US cent levels and we anticipate in the absence of local data a break to the downside should be contained at parity in local trade.