Australia: It was a volatile session overnight, with AUD trading to its lowest level since July 2009, before rebounding back towards USD0.8300. We saw further risk aversion trading late in our session and into the London session, which saw the AUD break below the key support level at USD0.8110. Sharp falls in Asian stock markets on concerns over the European debt problem contributed to the AUD falls as well as escalating tensions between North and South Korea. Investors played it safe and so we saw a lot of buying interest for the USD and the JPY. However some positive data results in the US saw the equity markets pair back some of their losses, helping support the AUD back towards USD0.8300. Traders are now pricing in a 21% chance the Reserve Bank will cut interest rates at its June meeting, up from 15% on Monday. With the chance of a rate cut on the horizon, ongoing concerns about the European debt crisis and tensions on the Korean peninsula, the AUD is going to struggle to make any significant gains and will most likely be capped at USD0.8380. Key support remains at USD0.8110.

Majors: As mentioned above it was a volatile night for currency markets with the USD and the JPY initially gaining ground Tuesday night as risk aversion trading took hold. The EUR plunged to a near 4-year low against the USD before making a modest rebound on some positive data results in the US, which seemed to soothe some investor's nerves. The US Conference Board's Consumer Confidence ndex rose for a third consecutive month, to 63.3 in May from 57.7 in April. Economists had expected a reading of 58.5. The better reading may have reduced some fears that the European debt problems would halt US economic growth. US equities also rebounded on comments from St Louis Fed Reserve Bank President Bullard who said that Europe's debt crisis won't derail the US or global economic recoveries. Further volatility is expected today as investors remain on edge about offshore events.

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