The dollar and yen held on to much firmer levels after risk appetite disintegrated in N.Y. trade after an inconclusive Italian election outcome. EUR-USD fell sharply to trade from over 1.3300 to the 1.3050 region by the Asian open, where it remained for most of the session. USD-JPY was choppy after it fell from over 94.00 to 90.85. It reversed to 92.70 in early Asia, but met good selling pressure on upticks amid a reduction in speculative positioning. Cable benefited from a EUR-GBP drop from 0.8800 to 0.8575 and traded back over 1.5200. AUD-USD was weighed by risk aversion to trade into 1.0250, though its fallout was absorbed to a degree by EUR-AUD's fall to 1.2680, which compared with Monday's highs just over 1.2900.

[EUR, USD]
EUR-USD extended to the 1.3040 region in Asia, but found a modicum of support on bargain hunting via EUR-JPY. However, the upside was limited to the 1.3080-90 region as the Italian election outcome threatens to derail the reform process and also fuel broader eurozone uncertainty. The bias is likely to remain lower. Specs may be tempted to test the 1.3000 area, which should be well defended intra-day by long-term order flow and oversold technical indicators.

[USD, JPY]
USD-JPY and the JPY crosses experienced strong bargain hunting in early Asia as Japanese importers and investment names capitalised on the sharp yen rebound. USD-JPY bottomed out just under 91.00 and rallied to 92.70 in the Asian morning. However, gains were limited by exporter selling and fund liquidation. EUR-JPY, which lost more than 5% on Monday from high to lows, recovered from 118.80 to the 121.35 area, but EUR uncertainty forced it back to 120.00 by late Asia. Japan Finance Minister Aso said FX volatility was undesirable, while Economics Ministers Amari would not comment on an appropriate level for JPY.

[GBP, USD]
Cable traded up to rebound highs of 1.5220 in Asia after it benefited from the sharp drop in EUR-GBP from 0.8800 to 0.8575. Early European accounts took advantage of the Cable upturn and sold into strength, leaving it around the 1.5170 region after the European open. The underlying trend is still skewed to lower levels due to weak fundamentals, which saw Moody's cut the U.K. sovereign rating late last Friday. The risk for the medium term is push below the 1.5000, though there are expectations that economic data this week is likely to show signs that activity is stabilizing in the U.K. economy.

[USD, CHF]
EUR-CHF also fell sharply in line with broader EUR losses after the Italian elections ended in gridlock. The cross fell back from over 1.2300 on Monday to trade at 1.2120 by today's Asian afternoon session as funds headed for safety. There was early bargain hunting out of the local markets, but movement over 1.2150 was weighed by EUR-USD heaviness, which is driving action so far. The weight of EUR-CHF selling has limited USD-CHF's ability to rally over 0.9300 and it still trading within the recent range under 0.9350 offers.

[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 1.0275, and more sellers are noted from 1.0280 ahead of barriers at 1.0300.