The dollar was easier against EUR, GBP and CHF on short term repositioning by speculative accounts. EUR started the session above 1.3100 and squeezed up to 1.3140 after Japan Finance Minister Aso said Japan will buy bonds issued by the eurozone's ESM bailout fund. Cable made it to 1.6130 highs in early Asia- Pacific trade, but headed back to 1.6100 after EUR-GBP carved out highs of 0.8150 on general EUR firmness. JPY was mostly firmer on profit taking by excessive yen shorts and did not react to more press reports of a potential accord with the Japanese government and the BoJ on a revised inflation target. In the U.S. market, there remains concern over the U.S. debt ceiling, while positioning was also kept tight as the Q4 earnings season gets underway. Elsewhere, Australia posted another poor trade deficit number, which widened to A$2.64 bln in November, which offered justification for RBA's recent 25 bp cut.

[EUR, USD]
EUR-USD started the session on a supportive footing after it squeezed up through 1.3100 during Monday's N.Y. session. There were good two-way flows in early trade between 1.3100 and 1.3130 before Japan Finance Minister Aso confirmed Japan would buy bonds from the eurozone's ESM bailout fund. A move through buy stops forced a high of 1.3140, but further gains were limited by good offers ahead of 1.3150 and heavy EUR-JPY selling from 115.20 to 114.60 on Japanese retail interest and light exporter activity. Short term accounts are expected to play the range via EUR-USD and layer offers from 1.3150 to 1.3170, but the lack of progress on 1.3000 raises doubts of sustained downside pressure. Buyers are likely from 1.3070-80 and into the 1.3030 area.

[USD, JPY]
JPY traded on the firmer side on another round of profit taking following similar interest during Monday's session. Market participants cited low exporter interest, suggesting that the moves have been on the back of a reduction of excessive speculative positioning. USD-JPY added to yesterday's pullback from the 88.40 area and moved through 87.30, which cleared out stops through 87.50. Dip buying was evident into this region, but movement back into 87.50 met short term fund offers. The press reported the potential government accord with the BoJ on a revised inflation target, but said it may be announced without any specific level. Meanwhile, the WSJ said some Japanese executives are also warning over JPY weakness going too far, too fast, which could leave the country exposed to soaring fuel costs that would undermine the economy.

[GBP, USD]
Cable consolidates close 1.6100 after it moved up to 1.6130 highs in early Asia-Pacific trade on dollar sell-interest and reports of GBP-AUD flows. Thereafter, general EUR firmness lifted EUR-GBP to 0.8150, which forced Cable back through 1.6100. Range players are unwilling to chase Cable higher at current levels, with last week's plunge to 1.6010 still casting a bearish shadow on the daily chart. The current move is more a fuction of repositioning by specs rather than a sea-change in sentiment. U.K. fundamentals remain poor and Cable players are more inclined to sell into strength still. Sell-interest is layered from 1.6130 to 1.6150 from short term players, but there is still a lack of participation from more long term names at current levels. Into 1.6000 and below hedging activity should pick up, while macro funds are expected to sell from the 1.6200-50 region.

[USD, CHF]
USD-CHF topped out ahead of 0.9300 on Monday and headed back towards 0.9200 during today's Asian session after it opened under 0.9230. The move lower came in lockstep on EUR-USD squeeze up through 1.3100 and extended run on 1.3140. USD-CHF reached 0.9206 lows before some natural demand went through, but upside movement was limited to 0.9220 as short term accounts attempt to keep the dollar offered in early Europe. Sell stops could feature under 0.9200 and bears are expected to gain traction on a move through January-3 lows around 0.9185.

[USD, CAD]
USD-CAD bottomed out ahead of 0.9850 bids during Monday's session and headed back to 0.9880 overnight. Range players covered shorts after good bids held and the downturn in stocks also encouraged CAD$ selling pressure. Sellers are likely towards 0.9890-00 and more interest is layered into the 0.9920 region, where USD-CAD topped out during Friday's session.