The FX majors traded within a narrow range for the second consecutive session. JPY was the main mover, but all the action came in Asia, which saw USD-JPY carve out early lows of 86.83 and then rebound over 87.50. EUR-USD continued to mark time under 1.3100 and Cable held close to 1.6050, where option maturities roll off for the second consecutive session. Japanese policy rhetoric continued during the European morning, but did not deviate from recent weeks. Abe continues to talk up prospects for a 2% inflation target, while the government will take action in the form of a supplentary budget, which will include Y5.2 tln in public works spending. European data included a much weaker than expected German industrial production outturn, while the U.K. trade deficit was close to expectations. Activity in the U.S. should also remain quiet amid another thin data calendar, while equity investors await a pick up in Q4 earnings next week.

[EUR, USD]
EUR-USD maintained narrow ranges under 1.3100. EUR-USD buyers were noted ahead of yesterday's lows around 1.3055, which kept the downside in check, while offers continued to cap into 1.3100. Option maturities add to price congestion and strikes are noted at 1.3000, 1.3050, 1.3075 and 1.3100. Equity markets have been mixed, with Asia posting modest gains compared with modest losses in Europe, which have also kept specs sidelined in FX. Ahead of the ECB policy meeting this directionless theme is likely to continue. A steady hand is expected, but markets will scrutinise comments from Draghi after the last meeting discussed rate cuts.

[USD, JPY]
USD-JPY headed back over 87.70 amid good Japanese demand from 87.35-40 and fund interest for EUR-JPY from 114.30 to 114.80. Since the USD-JPY clear out overnight to 86.80 the prospect for further upside momentum has increased and this fueled fresh long positioning. Offshore funds also put on new longs underneath 87.00 and target another push back to recent highs around 88.40 and a break of 88.50 option barriers. On an intra-day basis buy stops will feature through 88.00. Longer term players are still targeting 90.00 on aggressive Japanese policy despite some industry leaders warning against yen losses that go "too far, too fast" yesterday.

[GBP, USD]
Cable firmed up after it met buyers under 1.6050 in early trade. The U.K. trade deficit came in close to expectations. The underlying trend remains weak and likely to hamper Q4 GDP growth. Cable has drifted within a narrow trading range since the start of the week, with directional bias limited since the start of the year. The U.K. outlook remains weak and macro traders are still looking to sell into strength. Movement into 1.6000 has been limited so far due to hedging activity, but there are growing expectations that it will sustain a period of much lower levels. Ahead of the N.Y. open option strikes at 1.6050 could exert an influence of the second consecutive session.

[USD, CHF]
USD-CHF has steadied after it held on to the 0.9200 level following a brief period of dollar weakness during Tuesday's Asian session. USD-CHF's move lower came in lockstep on the EUR-USD squeeze up through 1.3100 and extended run on 1.3140. However, broader market sentiment weakened and the dollar firmed up, which lifted USD-CHF back to the 0.9250, where it has been in N.Y. and since today's open. We expect short term accounts to play the range. However, a break below recent lows at 0.9185 would reinforce dollar bears. EUR-CHF is still trading within a wafer thin range just under 1.2100.

[USD, CAD]
USD-CAD held above 0.9850 through the overnight session, a level which has provided good support virtually since the start of the year. Solid bids had been reported on a daily basis under the level, and buyers returned after a brief move to 0.9844 at the start of yesterday's North American session. The pair traded back to the 0.9880-85 area and then drifted back to 0.9865-70 and it looks as if more range trading will continue.