The dollar and yen rallied in N.Y. trade, as risk appetite disappeared early in the session. Before the open, equity futures indicated solid Wall Street gains, though with the fiscal cliff again looming on Friday, and the outcome of the Italian elections still in doubt, traders decided to sell stocks and buy dollars (and yen). EUR-USD suffered 250 points of downside, falling under 1.3080 from opening highs near 1.3320, after Italian media reported no majority in the Italian Senate following the elections. With no clear winner, is now faced with prospects for new elections. Cable meanwhile, tested under 1.5100, though buyers quickly returned, taking that pairing back over 1.5150. USD-JPY struggled to hold 94.00 early, and eventually slipped to lows under 93.30. USD-CAD made trend highs over 1.0270, as AUD-USD fell to 1.0270. The U.S. calendar picks up on Tuesday with December S&P/Case-Shiller home price index, February consumer confidence, January new home sales, and the February Richmond Fed index.

[EUR, USD]
EUR-USD hit pullback lows under 1.3200 by mid-morning, as longs cut back positions amid Italian election uncertainty. Italian exit polls emerged, and as the counting began, the Centre-Right and Centre-Left were neck and neck. EUR experienced a choppy N.Y. afternoon, with volumes lower than usual until the full election results are in. EUR-USD eased under 1.3190, as risk appetite quickly faded amid Italian uncertainty. Wall Street gave up all of its early gains, supporting the dollar. Euro sell-stops were later taken out under 1.3170, just below the overnight low. The pairing moved under 1.3080, after tripping light stops at 1.3170 and 1.3140, and again at 1.3100, as the euro touched 1.3078 lows following reports of no majority outcome from the Italian elections.

[USD, JPY]
USD-JPY trended lower from late morning, as risk appetite stalled, and as EUR-JPY came under pressure as a result of the Italian elections. With no clear winner, Italy is now faced with prospects for new elections. USD-JPY was hammered to session lows of 92.30 from 93.30 when this became apparent, largely on the back of EUR-JPY being crushed to 120.80 from 123.20. USD-JPY downside should be limited to 92.00 near term, with Japanese interest expected to step in on the bid. With further BoJ stimulus in the cards, the 92 handle could well be a good level to buy USD-JPY.

[GBP, USD]
GBP selling picked up again after EUR-GBP broke 0.8800 barriers. The cross flow was largely month end related, but Cable also saw some interest from 1.5130 and it traded back under 1.5100. A weak Chicago Fed National Activity Index seemed to help the dollar tone, but fund names also reappeared in Cable after a long period of sideways action since the European open. For intra-day traders, price reaction around 1.5075 will be watched after it held in early Asia Pacific trade. Option barrier protection is likely to be quite heavy from 1.5050 into the psychological 1.5000 level and we are in territory where movement will become more choppy.

[USD, CHF]
EUR-CHF was slammed lower in afternoon N.Y. dealings, as reports circulated that the Italian elections ended in gridlock. The cross, which had come under pressure after rallying early, broke through 1.2255, on its way to lows under 1.2190. The euro was widely weaker, as it fell against the dollar, sterling and yen, in particular. USD-CHF meanwhile, headed up toward 0.9325from 0.9240, as risk appetite eroded.

[USD, CAD]
USD-CAD was steady over 1.0220 early in North American trade, after peaking at 1.0240 in London. The initial rebound in equity and oil prices did not do the CAD much good, likely as dealers were reminded of Friday's soft CPI and retail sales data, and uncertainty over Italian elections. The pairing eventually pushed the 1.0250 level, where barrier options reportedly rolled off. There had been offers into the level defending them, though with those off the map, the upside opened up a bit, as risk appetite evaporated. USD-CAD peaked at 1.0270, and more sellers are noted from 1.0280.