The USD consolidated at familiar levels in quiet trade, but JPY added to recent losses as prospects for more Japanese policy stimulus encouraged a significant break of range over the Christmas trading period, where Europe was closed. USD-JPY moved to levels from September 2010 above 85.80 after good speculative interest went through, which supported EUR, GBP and AUD on dips due to appetite for long positions via the JPY crosses. There were no fresh U.S. fiscal cliff developments. U.S. Treasury Secretary Geithner said U.S. will reach its statutory debt limit on December-31. France releases PPI figures and consumer confidence, but the focus is likely to be on Italian business confidence figures and the Italian bill auction after Monti resigned and Italy prepares for yet another round of elections. Monti has confirmed that he won't run in the February 24 election, but said he may consider being the candidate for a colaition backing his economic agenda.

[EUR, USD]
EUR-USD was supported on dips, with EUR-JPY demand keeping it underpinned from 1.3220 to 1.3200. It traded back towards 1.3250, though further gains were stymied by a U.S. fund influence, leaving it close to 1.3235 by early Europe. It's likely that narrow trading ranges will continue for the remainder of the week, with most trading desks likely to run skeleton staff until the New Years Day holiday next Tuesday. Buyers are layered under 1.3200, while offers are noted from 1.3270-80 in size and through the 1.3300 level.

[USD, JPY]
USD-JPY surged over the Christmas holiday period after 85.00 barriers gave way, which the was catalyst for an extended run above 85.50 during N.Y. on Wednesday. USD-JPY experienced light profit taking from 85.60 to just below 85.50 in early trade, but took off on heavy EUR-JPY demand, which boosted it to new trend highs just over 85.80. Further gains were limited by offers from 85.90 related to more outstanding option barrier levels. EUR-JPY jumped to 113.60 after starting the session close to 113.00 amid CTA demand. Short term players are positioning for an eventual USD-JPY move on 90.00, which was a level mentioned by Abe last weekend, though be warned JPY is heavily oversold and speculative positioning is also excessive.

[GBP, USD]
Cable was steady around the 1.6150 region after it was unable to sustain a move over 1.6170 on Wednesday. EUR-GBP gains over 0.8200 has added some weight and may be related to month-end related flows. The sterling backdrop has looked more challenging since last week 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 is still trading on the heavy side just in front of support at 0.9100-10. 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 buyers are likely into 0.9100 in holiday thin 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 was underpinned in thin N.Y. trade on Wednesday, after it made its way back over the 0.9900 mark and extended to 0.9950 on Friday. It looks likely that CAD$ will maintain a heavier tone due to U.S. fiscal cliff uncertainty, while the further slowdown in Canada CPI Friday also raised pressure on the BoC to abandon its tightening bias. Natural support should emerge towards 0.9900, while the 10-dma at 0.9875 is another potential support region. There are several resistance levels between 0.9955 and 1.0000, which may see some range players turn long positions, which has been the case in thin trade this week.