The dollar and yen traded at easier levels, with stocks mostly higher in Asia and Europe. Italy underperformed after refinancing cost rose at today's action, which reflected weaker sentiment after the recent resignation of PM Monti. French and Italian confidence data improved, while U.K. BBA mortgage approvals rose. In Asia, China November industrial profits were up 22.8% on the year from +0.5% previously and South Korea business sentiment was negative for the eighth month. There were no fresh U.S. fiscal cliff developments, but U.S. Treasury Secretary Geithner confirmed that U.S. will reach its statutory debt limit on December-31. In the U.S., data will remain secondary due to the unresolved fiscal cliff.

[EUR, USD]
EUR-USD was supported by a EUR-JPY bid and month end related demand for EUR-GBP. The dollar pairing firmed up from 1.3240 at the European open after it benefited from a EUR-JPY rally out of 113.00-05 in Asia to new trend highs over 113.80 on Japan policy expectations. The risk backdrop was mixed overall, with U.S. fiscal cliff uncertainty offsetting the positive lead from Asian markets. In Europe, the focus remained on Italy after the recent PM Monti resignation. Italian refinancing costs rose at today's bill auction after it dented appetite. Meanwhile, Italian manufacturing confidence improved, but the economic confidence indicator fell. Eurozone markets were also still uncertain over the outlook for Spain, which fueled spread widening there. However, bias for the EUR is still turned to higher levels by virtue of supportive technical studies, which encourages bids from 1.3230 to 1.3200, though offers are congested from 1.3270 to 1.3300.

[USD, JPY]
USD-JPY surged over the Christmas holiday period after 85.00 barriers gave way, which the was catalyst for an extended run above 85.50 during N.Y. on Wednesday. USD-JPY experienced light profit taking from 85.60 to just below 85.50 in early trade, but took off on heavy EUR-JPY demand, which boosted it to new trend highs just over 85.80. Further gains were limited by offers from 85.90 related to more outstanding option barrier levels. EUR-JPY jumped to 113.60 after starting the session close to 113.00 amid CTA demand. Short term players are positioning for an eventual USD-JPY move on 90.00, which was a level mentioned by Abe last weekend, though be warned JPY is heavily oversold and speculative positioning is also excessive.

[GBP, USD]
Cable moved up from 1.6135 to just shy of 1.6200 in quiet trade. The move higher was in lockstep with EUR-USD on a supportive equity market backdrop. EUR-GBP experienced two-way flows related to month end hedging. An early move higher from 0.8170 to 0.8215 capped Cable initially, but it pulled back to 0.8190 on corporate hedging, which enabled Cable to extend high. Cable had performed relatively well prior to the Xmas trading period, but the sterling backdrop may sour last Friday after data underlined just how difficult it will be for the U.K. government to meet its fiscal target and there are increased expectations of a sovereign downgrade. Growth was downgraded a notch to 0.9% q/q, while borrowing came in worse than expected. The data completed reaffirmed the U.K. economic picture of sticky inflation, anaemic GDP performance and a government falling behind its fiscal targets.

[USD, CHF]
USD-CHF edged back into the 0.9100 region as European accounts were tentative dollar sellers on hopes that U.S. politicians will still reach a deal to avoid going over the fiscal cliff. Movement remains patchy as thin year-end trade limits momentum. However, the technical backdrop does still point to a test of early May lows around 0.9050 and then the 0.9000 area from late April. EUR-CHF was supportive ahead of 1.2080, but failed to clear offers just ahead of 1.2100 in early trade.

[USD, CAD]
USD-CAD edged back towards 0.9915 in thin Asia and Europe trade. The tone remains supportive on dips following the recent break just over 0.9950. However, as liquidity picks up into the North American session USD-CAD could test the 0.9900 area and interest just below on profit taking. Since it traded just above 0.9950 last Friday upward momentum has been lacking due to several resistance levels between 0.9955 and 1.0000. However, the daily chart is set up for a range trade, with buyers layered to the 10-dma at 0.9875.