Overnight news that the eurogroup failed to reach an agreement on Greece set the tone in Asia after EUR plunged from 1.2820 towards 1.2735. However, European markets held up well amid optimism that a deal will be reached next Monday, which fueled a EUR recovery to 1.2800. Juncker said a deal is close and Merkel offered hope when she said the good news is troika said Greece is fulfilling its obligations. Today's debt auctions from Germany and Portugal went ahead without any problems. The BoE minutes revealed an 8-1 vote to keep the asset purchase target unchanged, which was as-expected. Elsewhere, JPY was a major mover again on further selling pressure by specs, which drove USD-JPY up to its best levels since early April at 82.35 and EUR-JPY also saw heavy demand and added more than a big figure to 105.40.

[EUR, USD]
EUR-USD headed back to 1.2800 after it bottomed out just ahead of 1.2735 during the Asian session. Reserve management activity and EUR-JPY buying interest provided a modicum of support on dips. There was disappointment that the eurogroup meeting ended without an agreement on Greece, but the European market held up quite well. There is optimism that next Monday's meeting will end in a deal and Germany's Merkel was fairly optimistic. She also said the good news is that troika said Greece is fulfilling its obligation, confirming that the hold is more about plugging the financing gap rather than Greece failing to meet its end of the deal. The EUR move back to 1.2800 is expected to meet selling interest, which was evident on Tuesday as funds reposition into the U.S. Thanksgiving holiday.

[USD, JPY]
USD-JPY continued to hold on to a bid tone amid a combination of dollar supportive flows and persistent yen weakness. It tripped stops from 82.00 to 82.10 amid yen selling speculative accounts. The move is a continuation of the recent trend amid expectations of a LDP election win. On the topside offers are heavy to 82.40 from exporters, which lie ahead of early April highs of 82.43 and option barriers at 82.50. Option desks also note topside hedging from 82.50 to 83.00 for mid-December to early January. Nearly a yard of strikes changed hands at 82.75 for December-14, according to sources.

[GBP, USD]
GBP was a little firmer overall after the BoE voted 8-1 to keep the asset purchase target unchanged in early November. There were differences of opinion over the impact of QE and more stimulus, though some thought there was a case to be made and it would also discourage sterling appreciation. Extra stimulus would prevent damage to economy and also lower yields. Cable edged up from 1.5905-10 to 1.5930, but we think downside risk remains. On the downside support is noted to 1.5880 and into the 1.5855-60 area.

[USD, CHF]
USD-CHF topped out over 0.9450 after the rebound from 0.9400 in Asia ran out of steam. EUR fluctuations dominated price action. Sentiment in Europe held up quite well despite the eurogroup disappointing expectations for an agreement on Greece and will meet again on Monday. USD-CHF traders are still likely to play the range and we anticipate further buying interest into 0.9400 and below. SNB reserve management flows naturally provides the dollar with support on dips, while into the U.S. Thanksgiving holiday they are also likely to be dollar inflows. Meanwhile, EUR-CHF drifted lower after it met sellers just over 1.2050 and traded to 1.2042 lows, though buyers are noted at 1.2035-40.

[USD, CAD]
USD-CAD made it back to the 0.9990-00 area by early Europe after the eurogroup failed to reach an agreement on Greece. However, topside movement from here may be slow as a number of offers were reset over parity after failure to sustain the recent move over 1.0050. In the bigger picture, as the markets warily price in resolution to the U.S. fiscal cliff we think any CAD weakness may be fleeting. European markets also held up relatively well considering and this helped to support CAD$ on dips. On the USD-CAD downside movement into 0.9950-60 should meet corporate support, which lies ahead of sell stops below.