The dollar and yen fell in N.Y. trade on Tuesday, largely as risk appetite improved following some movement in cliff discussions. While both sie remain far apart, there was some confidence that a deal could yet be reached before the year end. Equities and commodity prices moved higher, sending EUR-USD to trend highs of 1.3238 in afternoon dealings. USD-JPY meanwhile, rallied toward 84.20. On the economic calendar, Q3 current account deficit came in wider than expected, while the home builders index improved some in December. Neither data point had much impact on FX trade. Wednesday's calendar is light again, with just housing starts and weekly EIA petroleum inventory data on tap. Focus will remain on risk levels, and news from D.C. negotiations.

[EUR, USD]
EUR-USD firmed up as standing bids ahead of 1.3150 out of Asia put a floor in place. The pairing eventually peaked at 1.3238, after taking out barrier options at 1.3200, and tripping stops over the figure. Risk appetite, on the back of hopefulness over cliff negotiations helped equities post decent gains, which weighed on the dollar. Good offers are noted building from 1.3250, which may slow progress going forward. Trade was thin in N.Y. however, and moves may have been exaggerated to a degree. The next major resistance area is 1.3280-85, representing the May 1 high.

[USD, JPY]
USD-JPY got a lift from the better risk backdrop, and managed to touch levels last seen in April of 2011. The pairing moved up to the 84.00 level ahead of the options cut, where expiries at the figure were noted. From there, the improved equity backdrop emboldened buyers ahead of the BoJ meeting. The Bank is widely expected to raise the asset purchase target and could also announce a new scheme aimed at increasing bank lending. The Bank is also under pressure from Abe to raise the inflation target to 2%, which was one of the election mandates laid out. Shirakawa met with Abe today for a short meeting, but did not comment on the content due to the media blackout, which is the usual protocol this close to a central bank policy decision.

[GBP, USD]
Cable made its way through offers that sat from 1.6220 to 1.6250, before ultimately tripping buy stops over the level, The pairing made it up to near 1.6270, following EUR-USD higher in N.Y. trade. U.K. CPI and PPI data did not change the market tone, with CPI right on expectations and PPI a bit easier than expected. The intra-day picture is positive for Cable and dip buying is likely to continue in the near-term. Buyers are noted into 1.6200 and below.

[USD, CHF]
USD-CHF consolidated recent losses overnight, trading underneath the 0.9200 level after last Friday's break lower. Natural demand into 0.9150 limited the downside into mid morning in N.Y. though as pressure on the dollar increased, the pairing tripped stops, taking it to near 0.9125. Market sentiment remained 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. Sellers are expected to use the 0.9200 level as a near-term pivot point for short term positions, while more resistance is tipped around 0.9220-30.

[USD, CAD]
USD-CAD eased ever so slightly to 0.9840 from 0.9850 into the North American open. Activity remained very light, and the pairing eventually turned marginally higher despite firmer equities and oil prices. Bids from 0.9820 kept traders from pushing too hard to the downside, and short covering eventually lifted the pairing back to 0.9855.