Markets were roiled by the U.S. fiscal cliff deadline in N.Y. trade on Wednesday. Comments from the co-head of Obama's fiscal commission, who said he thought it unlikely a deal would be reached by year end, sank stocks, supporting the dollar to a degree initially. Later, the Speaker of the House said revenues remain on the table to avert the crisis if they are accompanied by spending cuts. Wall Street rallied back on this news, taking the dollar to session lows. EUR-USD moved over 1.2940, after basing near 1.2880. On the economic calendar, softer new home sales dented equities, and supported the dollar briefly, though reaction was limited. Thursday's calendar brings weekly jobless claims, the second look at Q3 GDP, and October pending home sales.

[EUR, USD]
EUR-USD was heavy in early N.Y. trade, with sellers returning into the 1.2900 level. Support was seen at 1.2860-70, representing the November 23 low, though stops underneath never came into focus. There was some stop loss selling under 1.2900, though the bigger level is still at 1.2875 and there are a heavy congestion of option expiries, which should reinforce the current range bound action. The pairing touched 1.2880 lows before turning higher on the back of the uptick in risk appetite and rebound on Wall Street. The euro peaked over 1.2940.

[USD, JPY]
USD-JPY was supported by real money demand that was noted between 81.80 and 81.70 after the European open. Movement on the topside is now looking limited though as specs unwind excessive exposure to short yen positions. U.S. fiscal cliff concerns have picked up, which fueled a sell off in stocks initially, as investors booked profit ahead of a potential rise in capital gains tax. Even as stocks rebounded in N.Y. though, USD-JPY showed little sign of rallying, and the pairing was stuck between 81.8090 for much of the afternoon. USD-JPY is expected to meet buyers down to 81.50, where sell stops kick in. Short term accounts are still trying to hang on to positions in anticipation of a LDP victory in the mid-December election, but may start to look vulnerable through 81.50, with quite a number of accounts caught long on an 82 handle.

[GBP, USD]
Cable ran into buyers just under 1.6000, with reserve management flows influencing several currencies since the European open despite the risk-off lead from stock markets. Support is noted down to 1.5970 held through the N.Y. session. On the topside offers have been lowered under 1.6050 after the 55-dma caps gains from 1.6061 today, while option defensive orders are noted ahead of 1.6100 barriers. Comments from BoE's Bean kept alive expectations of more QE next year after he said it hasn't closed the door on further asset purchases and added that domestic inflation is not too much of a concern.

[USD, CHF]
USD-CHF stalled into offers at 0.9330 following the recent rebound from 0.9255. A pick up in dollar safety plays and month end flow fueled the rebound from lows earlier in the week. Support close to the market lies towards 0.9270-80, though range players have been tentative buyers into 0.9300 since the European open. Selling pressure is widely expected to increase towards the mid-0.93s. Overall, the market is lacking impetus, but U.S. fiscal cliff concerns is more likely to keep the dollar supported. EUR-CHF has been heavier and has tested levels under 1.2050 for quite a number of session due to eurozone risks, but SNB have reiterated its desire to defend the downside and their footprints were noted recycling reserves into USD and GBP yesterday and we expect limited downside in the cross into 1.2030-35.

[USD, CAD]
USD-CAD touched lows just above 0.9920 following U.S. fiscal cliff headlines, where risk appetite perked up in the face of House speaker Boehner's comments saying he thought an agreement could be reached with the president. The rebound in stocks helped the CAD, though with talk of solid bids into the 0.9900 level, USD-CAD turned back over 0.9930. Friday's Canada GDP release and next week's BoC will also deter heavier CAD$ long position building. The near-term risk is skewed to higher levels, though offers that were lowered under 1.0000 are still a barrier on the topside and sellers are seen from 0.9960 now.