Global markets remained transfixed on a series of negative themes from the Euro-region overnight, promoting a moderate risk-off market demeanor. The greenback and Yen found support against major counterparts initially driven higher by disharmony between France and Germany over how soon the Banking Union could be established. In addition, markets focused on the latest IFO data series which showed German the business confidence gauge fell to lows not seen since early 2010. Spain also remains a key point of contention for markets as Prime Minister Mariano Rajoy remains silent over if Spain will soon formally request a bailout. Meanwhile, Greece continues to bubble away in the background as investors wait in anticipation for a troika report which will ultimately decide if Greece will receive its next bailout instalment.  There’s some speculation the report won’t be released until after the U.S elections in early November to avoid placing President Obama’s re-election hopes in jeopardy should market adversity strike.

Despite recent stimulus efforts by central banks from both sides of the Atlantic to shore up confidence, growth concerns continue to undermine an extension of the risk rally seen in recent weeks. Spanish debt yields were pushed higher amid reluctance from PM Mariano Rajoy to formally request a bailout which threatens to place his own political fortunes in danger ahead of a key regional election on October 21. It’s clear Rajoy is facing the precarious decision between easing the financial burden by requesting a bailout and the effective loss of sovereignty given the strict conditions attached.  For now it appears Mariano Rajoy is taking it all in his stride, but markets will be transfixed on possible outcomes, in-turn a key directive for the Euro.

The Euro continued to reflect this range of negative themes briefly falling below 1.29-figure before finding moderate support in the US session. The US dollar’s safe-haven credentials kept it buoyant against major rivals with the NZD leading risk currencies lower. After falling to lows of 103.85, the Australian dollar was able to gain some upside support over the course of the U.S session, once again making a break to the upside of 104 US cents. Interest rate speculation dragged the Aussie dollar lower yesterday after Treasurer Wayne Swan delivered the final budget outcome for the 2011/12, which showed falling commodity prices and tax revenue may hamper his efforts to return the economy to surplus this year. Local markets will continue to focus on the Reserve Banks next move today with the Financial Stability Review scheduled for release this morning. Also at 11.30 AEST RBA Assistant Governor, Financial Markets, Guy Debelle will be speaking in Melbourne. There’s a valid argument to suggest the RBA’s next move may indeed be to cut rates, and market will be focused on both events for further evidence the bank may decide to do so in October.