The FX market overnight with Japan closed for the Emperors Birthday and risk taking kept to a minimum ahead of Xmas holidays. Incoming Japan PM Abe kept the pressure on BoJ over the weekend and said he will revise the BoJ Act if it did not adopt a 2% inflation target. He said a level of Y90.00 would support the profits of Japan's own exporters. USD-JPY moved up to 84.50 in very thin trade before it edged lower into the Asian close. The USD maintained a supportive tone after fiscal cliff negotiations reached an impasse last Friday and reports over the weekend raised the risk that a deal may not be reached until after the year-end. A quiet holiday week is in store with markets closed for Christmas on Tuesday and Wednesday and many markets closed or closing early today for Christmas Eve. In Italy, PM Monti resigned Friday, paving the way for early elections and the associcated risk of a backward step regarding the reform process.

[EUR, USD]
EUR-USD was a bit easier in early trade as the dollar found support on fiscal cliff uncertainty on Friday. Further losses have been limited by reports of strong support at 1.3160 and 1.3150, which encouraged light demand on dips. It entered the European session around 1.3185 and movement should remain limited into the Xmas and New Year period. CFTC data revealed that specs are now fairly neutral and our sources tell us that order books are also square now.

[USD, JPY]
USD-JPY rallied out of 84.25 to 84.50 in thin trade. There were no further gains and intra-day accounts squared up into the Asian close, leaving the pair around 84.35. Bias will remain on the topside given the latest pressure from Abe and option barriers at 85.00 may be threatened in the coming sessions. Macro funds and short term leverage accounts are buyers down to 84.00 ahead of good technical support at 83.80, while option related sellers are noted from 84.80.

[GBP, USD]
Cable steadied into the 1.6150 area following Friday's pullback from the 1.6250 region. Data released on Friday underlined just how difficult it will be for the U.K. government to meet its fiscal target and there are increased expectations of a sovereign downgrade. Growth was downgraded a notch to 0.9% q/q, while borrowing came in worse than expected. The data completed the run of data out of the U.K. that reaffirmed the U.K. economic picture of sticky inflation, anaemic GDP performance and a government falling behind its fiscal targets.

[USD, CHF]
USD-CHF ranges narrowed up overnight. Light buying interest was noted ahead of 0.9150, while the topside was capped ahead of Friday's N.Y. peak around 0.9180 and larger orders from 0.9200. More support is seen around the 0.9130 and the 0.9100-10 area. The technical backdrop does still point to a test of early May lows around 0.9050 and then the 0.9000 area from late April. However, since the break lower late last week movement has been more patchy as fiscal cliff negotiations and thin year-end trade limits directional bias.

[USD, CAD]
USD-CAD is underpinned after it made its way back over the 0.9900 mark and extended to 0.9950 on Friday. The pulled GOP "plan B" cliff vote in the House was the catalyst, though since the initial bounce, the pairing more or less stabilized around 0.9920-30. Liquidity was thin going into Christmas, where, when Monday and Boxing Day are included, many Canadian traders look forward to a five-day weekend.