CURRENCY: Markets should continue their ghost like performance within narrow ranges as volumes remain extremely thin in the wake of the US holiday.

Tonight's ECB and BoE interest rate decisions are the focus.

RATES: Rates are expected to open a touch lower this morning in line with European moves overnight.

REVIEW

CURRENCY: Tight ranges over the past 24 trading hours have been seen. The NZD was unable to break topside resistance at 0.8070 as volumes dried up and many remained on the sidelines.

GLOBAL MARKETS: Markets were generally quiet overnight with the US off for their Independence Day holiday. Euro area Services PMI surveys were generally better than expected (or final results were revised up from last week's preliminary prints). However, the UK and German numbers disappointed, which seem to be the main catalyst for risk-off, but on very thin trading. Main market moves - European equities traded flat to down with the Euro Stoxx back 0.35%; EUR/USD and GBP/USD have weakened in thin trade, but AUD, NZD and JPY are little changed against the USD. Peripheral spreads widened again - Spanish and Italian 10-year sovereign bond yields were 14bps and 17bps higher respectively, while their UK and German equivalents are down 4bps and 8bps. Commodity prices were flat to weaker, with base metals underperforming energy and gold prices.

KEY THEMES AND VIEWS

ALL EYES ON BoE AND ECB POLICY DECISIONS TONIGHT. Following the EU summit it now seems more stimulus is expected from the BoE and ECB tonight. Although our global economics team thought a rate cut was warranted in June, it's possible the central bank stayed its hand to pressure the EZ's political leaders into making bold decisions at the Summit. Our global economics team now expects the ECB will lower its key interest rates by 25bp tonight (refi rate to 0.75%, deposit rate to 0.00%, marginal lending rate to 1.50%). The EZ economy has clearly slipped into reverse in Q2, with the aggregate PMI manufacturing series printing in the 45-46 region since April. The unemployment rate continues to nudge to new highs -and stood at 11.1% in May. Inflationary pressures are softening, with a considerable easing in energy prices. So growth clearly requires another boost. They also expect the BoE to increase its asset purchase target by �50bn to �375bn. "Most" MPC members acknowledged that "further stimulus was likely to become warranted at some point" - and unlike some Fed members, the BoE believes that further QE is an effective tool to lower a range of market interest rates and help support nominal demand. For NZ this potentially means a stronger NZD against the GBP and EUR.

OTHER EVENTS AND QUOTES

� S&P raised the Philippines' credit rating to BB+, with a stable outlook from BB.

� Former Barclay's CEO Robert Diamond testifies to British lawmakers implicating that other banks also misled markets about their ability to borrow and blamed regulators for turning a blind eye.

NZD/USD: Waiting patiently?

Another consolidation day for the NZD is expected as it patiently waits for offshore directional guidance. Resistance at 0.8070 should remain in place for the bulk of the coming trading session while support closer to 0.8000 should go untested.

Expected range: 0.8010- 0.8070

NZD/AUD: Easing back?

Further Australian data today should keep this cross on the back foot with little chance of lifting past 0.7850 at this point. NZD buyers however are looking for slightly deeper moves which will limit any attempt to get substantially below 0.7800 at this point.

Expected range: 0.7800 - 0.7850

NZD/EUR: Woes of Europe continue?

While some of the periphery EU countries had better June PMI services results Germany did not. This assisted the NZDEUR touching a record post NZD float high overnight with little room to back off. Further moves higher are on the cards but today's ones should be limited.

Expected range: 0.6395 - 0.6435

NZD/JPY: Consolidating?

Markets are still waiting on JPY weakness to help lift this cross higher. Resistance at 64.44 remains the target today.

Expected range: 63.94 - 64.44

NZD/GBP: Ticking off?

Another target reached for this cross as it powers ahead. The taint of European issues is not lost on GBP investors who remain extremely wary of the UK's economic potential going forward.

Expected range: 0.5128 - 0.5168