In a largely risk-neutral session, expectations the European Central Bank will commence buying the distressed debt of Europe's periphery remained a source of support. While moderate losses across European stocks and weakness from the Euro may suggest the residual support may be slowing, it's clear the premise of ECB intervention continues to provide a tentative foundation. Nonetheless, peripheral bond yields remain uncomfortably high, suggesting the undertone of anxiety - particularly surrounding Spain - could manifest once again at the drop of a hat.

The theme of less-than-inspiring data from Europe's flagship economy remained source of disappointment with German industrial production falling 0.3 percent in June, to represent a contraction of 0.9 percent annually. Economists' had anticipated a rise of 0.3 percent and a 0.8 percent annual contraction.

Sterling rebounded after the Bank of England's inflation report and ensuing press conference from Governor Mervyn King. While the report provided a fairly bleak economic assessment and lowered the growth outlook, comments by Governor King suggesting a rate cut would be counter-productive and would do little for the economy, gave Sterling the impetuous to forge higher. On further asset purchases, King noted, "there are measures that we can take in the future and further asset purchases will clearly be one of them. That's something we will look at each month as we come to it, but without prejudging what the appropriate response would be."

After falling to lows of 105.3 US cents yesterday, the Australian dollar found consistent support with price action retracing losses to highs of 105.83 US cents. The day ahead will see top-tier event risk from both Australia and China guide the way for the Aussie dollar with local employment and Chinese CPI data both critical directives. Economists' estimates show the Australian economy will create 10,000 new jobs in July, while the official unemployment rate is tipped to edge higher from 5.2 to 5.3 percent.

In a sign the Chinese Government has ample breathing space to relax previous efforts to rein in inflation, consumer prices are expected to ease further in July to a yearly pace of 1.7 percent from 2.2 percent in June. Markets are watching for any sign of imminent easing from the world's second largest economy. A rise in easing expectations is likely to induce gains from currencies contingent on Chinese growth, with the Aussie dollar a prime beneficiary. Later in the afternoon, participants will also be watching closely data on industrial production, retail sales and fixed asset urban investment. Although mid-tier themes, we expect any significant deviation from estimates to provide direction for the local unit. At the time of writing the Australian dollar is buying 105.7 US cents.

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