We've seen a strong turn around across the risk spectrum overnight as market participants price in expectations of near-term policy action from both sides of the Atlantic. This reversal in sentiment suggests markets a running on the premise of new policy initiatives rather than any concrete action, implying a significant risk of reversal should European leaders and US Federal reserve fail to appease expectations. We're also seeing the chances of further policy action by the Federal Reserve being priced into the market ahead of tonight's FOMC decision - another potential disappointment should Bernanke and Co fail to keep the quantitative easing dream alive.

Reports suggesting European leaders were prepared to begin large-scale bond purchases of stressed government debt using designated rescue funds help the Euro to extend earlier gains. The Euro grinded to highs of $US1.2730 before the reports were refuted by German officials subsequently promoting short term downside back below the figure. At the time of writing the Euro remains supported above short term support at $US1.2685.

An auction of Spanish debt was met with strong demand overnight which provided some solace, but still yield premium demanded almost twice as much as a month ago. Despite 10yr yields easing below the 'bailout zone' of 7 percent, earlier Spanish 10 year yields rose to fresh euro-era highs of 7.2 percent.

The Australian dollar built on yesterday's gains domestically rising to highs just above 102-figure. The RBA minutes provided moderate support for the local unit yesterday and the momentum carried on overnight alongside sentiment barometers such as the S&P500 which at time of writing is up around 1 percent. It's now a waiting game for market participants as the globe turns to European leaders for their next move. The G20 may provide short-term solace as they reiterate there pledge of solidarity, but it remains to be seen if it will be enough to keep markets on a north-bound trajectory, or at the very least moderate expectations of a dooms day scenario.

In the absence of local data, we anticipate regional equities will be the key directive for price action in the domestic session with 102-figure likely to remain a short-term barrier. At the time of writing the Australian dollar is buying 101.90 US cents.