The dollar traded on a firmer footing as stock markets came under pressure in Europe on fiscal cliff anxiety. Asian markets continued to trade in a bubble, largely due to Japanese policy risk, which fueled more gains for the Nikkei and encouraged gains across other regional benchmarks. Movement in the FX market was heavily exacerbated by thin conditions today, with JPY influential. After reaching new trend lows in Asia there was a marked correction in USD-JPY from over 86.60 to just below 86.00, while EUR-JPY slumped from over 114.60 to 113.30. Comments from Japan Finance Minister Aso grabbed some attention after he said it would intervene in the currency market when speculation drives excessive yen gains or losses.

[EUR, USD]
EUR-USD headed back under 1.3180 as European stocks posted modest losses. After making an early attempt just over 1.3250 it ran into dollar buyers as U.S. fiscal cliff uncertainty kept markets on the defensive ahead of the weekend. The unexpected downward revision in French final Q3 GDP weighed a touch, but it is mostly events in the U.S. that is driving movement as fiscal negotiations go right to the wire. There are natural buyers widely anticipated into 1.3200 and 1.3180, while recent Asian central bank activity via local currencies may also trigger reserve management activity on dips.

[USD, JPY]
JPY headed higher on profit taking, leaving USD-JPY close to 86.00 versus Asian session highs of 86.63. EUR-JPY has been a big mover, dropping from 114.60 in early Europe to 113.30. Japanese policy risk should encourage yen selling pressure on upticks, but into the weekend U.S. fiscal cliff uncertainty is likely to dampen position taking. Outstanding USD-JPY expiries could attract at 86.00, while bids are noted at 85.75-80 and 85.50.

[GBP, USD]
Cable traded back through 1.6100 as the dollar bid steepened as stocks markets in Europe headed lower on U.S. fiscal cliff anxiety and the unexpected downward revision in French GDP. Movement has been heavily exacerbated by thin year-end trading conditions, though most of the action has been isolated to JPY and EUR. EUR-GBP pulled back to 0.8190 from 0.8225, while GBP-JPY lost a big figure since the European open to 138.40. Cable is meeting a few natural buyers around 1.6090, while more support is noted around 1.6070 and 1.6050.

[USD, CHF]
USD-CHF headed back over 0.9150 and extended to 0.9170 in thin trade. Movement in USD-CHF mirrored the EUR-USD correction back to 1.3180, though direct flows via USD-CHF were limited, overall. There are still USD-CHF sellers layered towards 0.9200, which have held since December-16 and are protecting buy stops above. The daily chart has pointed to an extended move under 0.9100, but the lack of follow through yesterday has left a more neutral picture.

[USD, CAD]
USD-CAD maintained a firmer tone overnight after it moved off 0.9910 back to 0.9960 during Thursday's session as risk appetite deteriorated on U.S. fiscal cliff doubts. In the absence of domestic data focus came from the U.S. ahead of the weekend. The daily chart set up suggests more range trading. Asian market gains encouraged tentative selling, but for the most part short term accounts appear unwilling to add risky positions ahead of the year-end and the downside looks limited ahead of 0.9900. Over 0.9950 there are still several resistance levels between 0.9955 and 1.0000, which will keep ranges tight.