European market sentiment was poor after economic data releases underlined the difficult economic backdrop. The dollar made up modest ground, which saw the EUR pullback from 1.3125 to 1.3085 and it weighed a touch on AUD through 1.0460, but Cable maintained narrow ranges close to 1.6100. In the FI market, spreads widened after the Spanish bond auction missed the top target of EUR 4.5 bln, but robust demand was evident and yields continued to fall. In the North American session, there is a heavy U.S calendar to digest, which includes ADP jobs, ISM non-manufacturing, productivity, labor costs and orders. Tape bombs relating to U.S. fiscal cliff negotiations should also influence price action, though most participants expect it to go right to wire.

[EUR, USD]
EUR-USD topped out around 1.3125 in early Europe and headed to 1.3085. Large standing offers ahead of 1.3150 barriers, along with supranational bank selling was the catalyst for softer levels. Spanish auction results weighed on the bond market and spreads widened after it missed the top target, though results were relatively healthy overall, but eurozone retail sales dropped 1.2% in October, which was worse than expected. EUR longs remain in control while it holds on to a 1.30 handle. Buyers are tipped at 1.3070-80, 1.3040-50 and 1.3020. Sell stops are noted through a break of 1.3020 and 1.2995-00. Earlier, eurozone services PMI was unexpectedly revised up to 46.7 from 45.7, but did not impact.

[USD, JPY]
USD-JPY consolidated overnight gains, leaving it close to 82.25 as ranges narrowed up in quiet European trade. Large option expiries at 82.00 and 82.20 are keeping the pair supported, though momentum is being contained by exporter offers from 82.40-50 and residual option barrier exposure from 82.90-00. EUR-JPY maintained a bid tone after the overnight rally out of 107.15 to 107.96 highs, but option related offers cap ahead of 108.00. Equity markets are trading more cautiously in Europe after the pick in Asia, which has dampened some speculative activity. JPY should still experience supply on upticks, but at current levels yen shorts are still a crowded trade.

[GBP, USD]
GBP is little changed despite a poor U.K. services PMI reading, which hit the lowest levels in nearly two years. Cable idles just in front of 1.6100, while EUR-GBP is close to 0.8140. There is limited appetite to take on positions ahead of the the U.K. government's mid-year fiscal review. GBP risk may be on the downside amid a poor U.K. growth outlook and expectations that the Chancellor will push back the deficit cutting target due to lower than expected tax receipts. Cable bids are noted into 1.6070-80 and ahead of 1.6050, while hedging activity is noted around 1.6125-30 and oustanding option barriers at 1.6150. In other news, HSBC will sell its 15.6% stake in China's Ping An Insurance for around GBP 5.8 bln to Thailand's Charoen Pokphand Group, which could generate future GBP demand.

[USD, CHF]
EUR-CHF remains supported close to 1.2150 following the decision by large Swiss banks to charge negative rates on CHF depos. Speculative names have unwound swissy longs in anticipation that capital inflows will drop off, though the improved tone in the eurozone has also added traction. Eurozone bond markets are in much better shape and this has helped to shore up the EUR downside over the last week. USD-CHF has also been stable despite last week's bearish break lower. After moving into 0.9250 it reached levels, where buyers saw good risk-reward and demand is layered to 0.9230 and into 0.9200-10.

[USD, CAD]
USD-CAD tested support at 0.9900-10 in early Europe after stocks started on the front foot amid the overnight rally in Asian stocks. However, European markets were more cautious and early gains faded, which lifted USD-CAD back to 0.9925. Overall, USD-CAD is still within the well worn ranges. Offers continue to cap under 0.9960 and the downside is well supported by a variety of option and corporate backed bids. However, a clean break of 0.9900-0.9895 could unlock support around November-7 lows at 0.9875-80.