EUR gapped lower from the Asian open after Italy PM Monti announced he will resign as soon as the 2013 budget is passed. However, it never had a lasting impact on the Asian market, which keyed off encouraging monthly data releases from China. Industrial output, retail sales and fixed asset investment reinforced expectations that the China economy is now recovering. However, November trade data was disappointing after the surplus came in at $19.6 bln versus expectations of $25.7 bln after exports and imports both missed the consensus at 2.9% y/y and 2.0%, respectively. EUR traded close to 1.2900 by late Asia, Cable found support into 1.6000 and AUD maintained tight ranges just below 1.0500. JPY maintained tight ranges, with next Sunday's election risk keeping interest tight. The focus will come from Italian politics, Friday's report on increased ECB rate cut expectations and U.S. fiscal cliff developments.

[EUR, USD]
EUR-USD made an early test of 1.2880 after it gapped down from 1.2925 at the Asian open following news of Monti's resignation. Oversold short term indicators and positive China monthly data limited the downside. Shorts covered and it moved back over 1.2910. However, the outlook is bearish due to the political developments, along with increasing expectations that the ECB could be forced to cut rates in early 2013. A report released by Bloomberg on Friday said the majority of the ECB supported a rate cut, which significantly shifted the ECB outlook after the growth downgrade at Thursday's ECB policy meeting.

[USD, JPY]
USD-JPY backed away from 82.65 early on to 82.40 after the JPY crosses met selling pressure on upticks. EUR-JPY fell back from over 106.50 to 106.20 on Italian politics, which weighed on GBP-JPY's move from 132.45 through 132.00. AUD-JPY eased from 86.65 to 86.25, but China data was supportive on dips. Ahead of next weekend's Japan election movement may become more limited. The latest CFTC data revealed that yen shorts added to positions, leaving it at mult-year highs and could be another restrictive influence. However, yen shorts are expected to hang on for more aggressive policy stimulus ahead. LDP are widely expected to win next week's election and add pressure on the BoJ, but after today's confirmation that Japan is in recession this the likely outlook.

[GBP, USD]
Cable found persistent support into 1.6000 since last Friday's N.Y. session. Foreign investor inflows, M&A related hedging and reserve management flows fueled a modicum of support in spite of poor U.K. fundamentals and a weaker technical backdrop. We anticipate selling pressure on upticks, with sellers likely from Friday's European highs around 1.6060, while 1.6100 is still a near-term pivot point. Under 1.6000 there are good support levels from 1.5990 to 1.5950-60.

[USD, CHF]
USD-CHF is hovering around the 0.9350 region after last week's break higher amid a breakdown in eurozone sentiment following a poor growth outlook from the ECB. The risk backdrop is still likely to influence near-term action and bias is on last week's highs around 0.9380 and offers from 0.9400. Buyers are seen from 0.9320 in the near-term and through 0.9300.

[USD, CAD]
USD-CAD edged out lows of 0.9865 in early Asia following last Friday's drop from 0.9925 to near 0.9875 after the Canadian jobs surge supported retention of the BoC's tightening bias. In addition, the U.S. jobs report buoyed the CAD as well. Progress on USD-CAD's downside is slow due to support from 0.9865 to 0.9850, but Friday's break down should support selling pressure on upticks and offers are widely tipped from 0.9900-10 and 0.9940-50.