The European session was quiet as markets looked towards the Xmas holidays and year-end. After last week's Fed policy decision and the Japanese election outcome the focus shifts back to the U.S. fiscal cliff, which is now the most significant issue to deal with before the year-end. There are still promising signs that politicians are narrowing the gap in order to reach a deal. Movement across the FX market was limited. JPY saw tentative demand in Europe as specs booked profit after USD-JPY traded at 84.48 highs in Asia and EUR-JPY topped 111.00. EUR-USD moved into 1.3200 before drifting back to 1.3150 as EUR-JPY pulled back just under 110.00. The U.S. calendar today includes NY state manufacturing and TIC inflow data, while Canada features international securities transactions data.

[EUR, USD]
EUR-USD traded close to 1.3150 throughout in light European trade. Central bank EUR demand on dips kept the downside in check, but EUR-JPY profit taking activity added weight. After trading into 1.3200 in Asia it drifted back to 1.3145 by early Europe. Upside movement thereafter was limited to the 1.3170 area and it didn't trade far from 1.3150 in several hours of trade. Volumes have dropped off due to year-end and a light European data calendar also curbed interest ahead of the N.Y. open, where U.S. fiscal cliff negotiations are potentially the biggest focus. Options could influence on an intra-day basis, with strikes at 1.3150 and 1.3100 and barrier on top from 1.3200.

[USD, JPY]
JPY was supported by profit taking in Europe following the LDP election victory. It is now likely that Japan will push on with various policy stimulus, which will include BoJ policy easing and a new Y10 tln draft budget. JPY is still expected to trend lower, but after an excessive build up of short positions and the gap at the Asian open short term accounts are paring back positions. USD-JPY met option related offers into 84.50 and after chopping around 84.00 at the European open it is filling bids into 83.70-80 and more are noted at 83.50. EUR-JPY also pulled back from levels over 111.00 and filled bids into 110.25-30 and eyes the 110.00 area.

[GBP, USD]
Cable traded a tight range close to 1.6200 since European open after good Middle Eastern buying interest went through. After trading above 1.6200 in early Asia and early Europe there is limited follow through. Market interest has been patchy elsewhere due to a drop off in liquidity into year-end, but Cable is in territory where relatively good two-way flows are noted. Sovereigns have been active on dips in recent sessions, while U.S. and Asia accounts were noted between 1.6180 and 1.6190. Over 1.6200 there are offers placed from 1.6220 to 1.6250 that should keep ranges narrow.

[USD, CHF]
USD-CHF remains under pressure after it broke below the 0.9200 level after Friday's European close. It found natural demand in Asia ahead of 0.9150, but since Europe opened sellers have lined up orders into the 0.9190-00 area, leaving downside risk. Market sentiment remains positive, which sets up the dollar pairing for a test of early May lows around 0.9050 and then the 0.9000 area from late April. However, into the year-end price action may become disjointed and limit directional bias. EUR-CHF is marking time under 1.2100 after last week's break lower over the SNB policy review. The downside is still being limited though by SNB's FX policy stance and good support is noted into 1.2050 and below.

[USD, CAD]
USD-CAD edged up through Friday's N.Y. highs to reach 0.9880. The move higher was against the grain of stocks and commodities, which are holding up generally after the Japanese election victory and policy hopes from China. On Friday, CAD$ was weighed on after news that S&P downgraded six Canadian financial institutions by a notch, which was an excuse for short term accounts to turn positions after 0.9820 stops held for the second session. Offers are tipped now from 0.9880 to 0.9900.