The dollar maintained a firm tone, which reinforced EUR selling on strength. Eurozone unemployment fell 0.3% q/q in Q4, which underlined weak conditions in the euro-area. There was no appetite to buy EUR despite a good Spanish debt auction as the macro backdrop continued to drive short term flows. The ECB monthly report reiterated the accomodative policy stance, but Nowotny did not think cutting rates was appropriate for now. Cable continued to experience a more stable tone as overstretched positioning kept it elevated above 1.4900. JPY fell ahead of the BoJ leadership vote in the upper house after it passed the lower house with ease overnight. In Asia, AUD jumped from 1.0300 to 1.0380 after strong Australia employment eliminated RBA rate cut risk. NZD tumbled around 100 pips to 0.8165 after RBNZ Governor Wheeler talked down NZD following the steady policy hand.

[EUR, USD]
EUR-USD topped out around 1.2975 as offers emerged ahead of Asian highs over 1.2980. ECB's monthly report held no surprises, but the reiteration that contained inflation allowed accomodative policy fueled light EUR selling after the topside held and it headed back under 1.2950. ECB's Nowotny said changes in monetary policy were not appropriate at this stage, though market expectations are still elevated after yesterday's weak eurozone production numbers. The fundamental outlook when compared with the U.S. supports EUR short positions and in the near-term movement is skewed to another test of barriers from 1.2900. On the expiry diary today there are plain vanilla maturities at 1.2925, 1.2950 and 1.3000 that should add to selling pressure on strength.

[USD, JPY]
JPY came under pressure from the European open after the lower house approved the three nominees for the new BoJ leadership, which raised hopes for tomorrow's upper house vote. Expectations of more policy stimulus picked up and may be justified after industrial output was revised down to +0.3% m/m from 1% in the preliminary reading. USD-JPY was lifted by macro funds from the 96.00 region after Japanese buyers put a floor in place at 95.70 in Asia. The JPY crosses were supported by retail names in EUR-JPY from 124.50 and it traded back over 125.00, while AUD-JPY was boosted from 99.40 within a few pips of a the psychological 100.00 level. USD-JPY is closing into 96.50, where exporter hedging was prevalent at the start of the week, though there are reports that the usual seasonal repatriation flows have been much lower than usual due to the timing of the BoJ leadership vote. After Friday, there is potential for more of these flows to go through.

[GBP, USD]
Cable dipped into 1.4915 after London range players sold just over the 1.4950 level early on. In the absence of fresh news flows the underlying dollar trend triggered early positioning. Losses were contained, however, by option support amid good size 1.4925 expiries. Tomorrow's large 1.4950 strikes in well over a yard have also received a lot of airplay across dealing desks and ranges could well be tied up into the weekend. The recent rebound out of trend lows around 1.4830 triggered a buy signal on the daily chart late Tuesday and there is evidence of topside hedging. Short dated interest over 1.5000 traded in Asia and in particular a very large 1.5100 expiry for next Monday has been active as overstretched shorts hedge against a short squeeze.

[USD, CHF]
EUR-CHF was firmer overall after the SNB left policy unchanged, which was widely expected. Local names, which were long into the decision, booked profit and this resulted in a brief dip from 1.2355 to 1.2335. Thereafter it took off to print session highs around 1.2370, where a build up of offers have been tipped in the last few sessions. USD-CHF also moved up to 0.9545 ahead of the announcement, but dropped to 0.9510 on a "sell on the fact" move. The SNB look no where near changing policy ahead after it lowered its inflation forcast a notch to -0.2% for 2013 from -0.1% previously and it expects it to pick up to +0.2% for 2014% and 0.7% in 2015. However, it also looks unlikely that the SNB will offer further stimulus unless there is a significant deterioration in growth or the eurozone situation was to rapidly change course.

[USD, CAD]
USD-CAD turned away from the bottom of its recent range amid broad dollar strength and the overnight dip in equity markets. Bid interest was prevalent into 1.0240-45 and protected sell stops below and it headed back to the 1.0280 area. Movement is influenced by short term range players and this theme looks likely to continue while stops are intact either side of 1.0240 and 1.0300.