The dollar added to Wednesday's rally as equity markets lost upward momentum. Markets reassessed the U.S. outlook after the U.S. fiscal cliff deal. The debt ceiling still needs to be addressed and political tensions are likely to remain in the coming months. Dollar buying interest was backed up by a bullish daily chart set up following Wednesday's correction, which fueled EUR selling pressure on upticks. The better than expected labour data from Germany and Spain fueled a move up from 1.3135 to 1.3170, where good selling pressure went through and it successfully tripped stops under 1.3100. Cable followed suit and moved under 1.6200, but AUD held up around 1.0500 amid reports of macro accounts adding long positions via EUR and GBP following the recent correction into the Christmas trading period.

[EUR, USD]
EUR-USD broke 1.3100 after it ran into good selling pressure from 1.3170. Early demand was noted by a fund name and an Asian central bank from 1.3135, but this provided better levels for specs to get out of stale EUR long positions. The catalyst for higher levels was better labour market data from Germany and Spain. Yesterday's move under 1.3200 and extended run through 1.3150 in Asia reinforced downward momentum, along with a more cautious market tone as participants reassessed the U.S. outlook. Some names tipped the EUR sell off on fresh positions being put back on now that fund repatriation has ended and fractures in the eurozone could reemerge. Zerohedge focused on yesterday's Ekathimerini report, which flagged bad loans in Greece and underpins expectations of another bailout.

[USD, JPY]
USD-JPY threatened support at 87.00 amid EUR-JPY selling pressure. EUR-JPY's drop from 114.80 in early Europe through 114.00 forced USD-JPY from 87.30. Macro fund and importer bids from 87.00 to 86.80 should limit losses, along with general dollar strength as market participants reassess the U.S. outlook following the fiscal cliff deal, which still did not addess the debt ceiling. Economic data releases have been a side issue since Wednesday as repositioning is the main driver in thin New Year trade. However, the yen outlook is still bearish due to Japanese policy risk, but it has moved a long way in Q4 and it is due a period of consolidation.

[GBP, USD]
Cable headed back towards 1.6200 after it met selling pressure from short term spec that keyed off a heavier equity market backdrop and short term technical, which encouraged dollar buying interest on dips. The sterling picture was dented a little by the poor construction PMI release, which came in at six month lows of 48.7. The latest BoE credit conditions survey suggested a pick up in lending in Q4, which will be welcomed, but triple dip recession risk is still a possibility. Yesterday's manufacturing PMI jump was a positive, but Cable could not manage higher levels. The more significant services sector PMI release is due tomorrow.

[USD, CHF]
EUR-CHF ran into selling pressure over 1.2100 after early swissy shorts booked profit after the Swiss KOF leading indicator came in at 1.28 from 1.50 previously. The headline release was in line with early market speculation and relatively close the market median, which muted reaction. EUR-CHF edged away from 1.2105 highs to trade back to 1.2090, where it started the European session. USD-CHF pulled back from early highs around 0.9215 to trade at 0.9185 on Asian central bank selling, but should find buyers on dips after it rebounded from under 0.9100 on Wednesday. It once again raised doubts over the lack of sustained downside pressure despite the bearish chart pattern and it is now trading at neutral levels.

[USD, CAD]
USD-CAD was steady close to 0.9850 after it met sellers from 0.9870 into late morning, which is where interest was noted during yesterday's North American afternoon. The marked rally in global stocks yesterday and further gains in Asia should provide CAD$ with support on dips, leaving prices skewed to 0.9840-50. USD-CAD is nearing December lows of 0.9825, where very good support is noted ahead of 0.9800.