The FX market was extremely quiet overnight with Japan and most of Europe closed, along with holiday shortened sessions in London and the U.S. The dollar was a touch easier as equity markets rose, which helped EUR back over 1.3200 and Cable just over 1.6200. JPY also eased after 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. In Italy, PM Monti resigned Friday, paving the way for early elections and the associated risk of a backward step regarding the reform process. Market attention will remain on the political scrambling around the precipice of the U.S. fiscal cliff. House leader Boehner said he is still prepared to work with the Democrats after it shelved a "Plan B" vote late last week.

[EUR, USD]
EUR-USD moved back over 1.3200 and extended to the 1.3230 area in very thin trade. The supportive equity market backdrop was the catalyst for light dollar supply. The lack of interest in holiday trade exacerbated the move up from Asian session lows of 1.3170 ahead of good bids at 1.3150-60 and backed up by a supportive technical backdrop, along with option expiries at 1.3200, 1.3250 and 1.3300. On the topside offers are noted from 1.3230 to 1.3250 ahead of a return to last Wednesday's highs over 1.3300.

[USD, JPY]
USD-JPY held steady just shy of 84.50 in Europe after it rallied out of 84.25 overnight in thin trade. Incoming PM Abe maintained the pressure on BoJ vowing to revise BoJ law if it did not change the current inflation target to 2%. This fueled yen selling pressure, though a lack of market participation limited movement once 84.50 dealt. USD-JPY 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 overnight and moved back into 1.6200 after equity markets posted modest gains. The sterling backdrop soured on Friday after data released 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 reaffirmed the U.K. economic picture of sticky inflation, anaemic GDP performance and a government falling behind its fiscal targets.

[USD, CHF]
USD-CHF headed back towards support from 0.9130 after firmer equity markets fueled an easier dollar tone. Overall, activity was light, which exacerbated the downturn. 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, but support around 0.9100 may mark the bottom in holiday shortened trade. 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.