Very heavy EUR buy orders dominated the European morning. Interbank names keyed off eurozone political uncertainty from the European open, but were stopped out after a sharp short squeeze influenced by a large EUR-USD bid ahead of 1.3450 out of Asia and a massive EUR-JPY buy order, which fueled a rally out of 124.00 over 126.00 as specs added momentum to the move. The EUR rally had positive resonance from European economic fundamentals, where German Services PMI beat expectations and offset weak numbers in Italy and France. In the U.K, a surge in Services PMI allayed triple dip recession fears, but Cable could not sustain a brief pop above 1.5800 due a large macro bid in EUR-GBP, which saw it snap back over 0.8600 from 0.8555. USD-JPY added more than a big figure to reach new trend highs as dollar bulls were emboldened by the EUR-JPY bid, which lifted it out of 92.15 to new trend highs around 93.30.

[EUR, USD]
EUR shrugged off eurozone political uncertainty and focused on optimism over the economic outlook after positive German Services PMI, which offset a weak reading from Italy and France. After it threatened support at 1.3450-60 in early Europe, a very strong bid from an Asian sovereign fueled a short squeeze. European accounts piled in and got added momentum after strong and persistent interest from Middle Eastern names via EUR-JPY and a macro bid in EUR-GBP. This took the dollar pairing back over 1.3500-20 and it extended gains through 1.3530 and 1.3550 after German data and a subsquent leg up in EUR-JPY through 126.00 and 126.50.

[USD, JPY]
USD-JPY was boosted back over 93.00 amid strong EUR-JPY demand from more than one Middle Eastern sovereign name, which raised speculation of a big reserve shift. Risk appetite also improved as strength in German and U.K. Services PMI boosted stock markets and encouraged speculative yen selling. USD-JPY saw specific flows from Japanese corporates from 92.15-20 up to 92.40, but took off thereafter on EUR-JPY demand. Over 93.00 there were large Japanese banks that capped the rise initially, but EUR-JPY rally from 124.00 to over 126.50 left USD-JPY bulls in charge.

[GBP, USD]
Cable was boosted just over 1.5800 after U.K. Services PMI jumped to 51.5 in January from 48.9 previously, which was much better than expected. The strength of the data forced EUR-GBP from 0.8585-90 to just under 0.8570, but it snapped over 0.8600 late on in the European morning on broad based euro strength on optimism over the German economy. The U.K. number will also allay triple dip recession risk and may enable sterling to stabilise ahead of Thursday's BoE meeting and testimony to the Treasury Select Committee by incoming BoE Governor Carney. Sterling has been weighed of late on a weak U.K. outlook, yet also expectations that Carney could favour a more dovish policy bias. His comments are likely to set the tone ahead, while the BoE are expected to keep current policy on hold on Thursday as it evaluates the impact from the Funding for Lending Scheme.

[USD, CHF]
EUR-CHF took its lead from eurozone developments and rebounded out of 1.2255-60 to trade up to 1.2310 after weak EUR shorts were stopped out on bargain hunting. EUR-CHF saw local names on behalf of hedge funds and there was also an interbank influence on the way up. Short term buyers bought dips after the inital push higher and it was able to consolidate gains over 1.2300 by late on in the European morning as EUR-USD pushed on through 1.3550. There wasn't too much of a reaction from the unexpected drop in Swiss exports in December. Market participants are already looking ahead after recent signs out of the eurozone and Asia that conditions have improved since late last year.

[USD, CAD]
USD-CAD was unable to clear offers from 1.0000 to 1.0010 as a pick up in European equity markets added a modicum of support to CAD$. Short term range players weighed on the dollar pairing and it edged back towards 0.9975. USD-CAD looks like a range trade currently, with the downside hampered by a congestion of bids, which are widely noted from 0.9950 all the way down to 0.9900 from corporate accounts and option names. On the other side of the market, fund and CTA types are seen on the offer ahead of buy stops above.