Range bound action influenced FX markets in quiet trade. The dollar made up ground early on as equity markets traded defensively, but the recent trading range held, which fueled EUR dip buying ahead of 1.3000 and Cable demand ahead of 1.6000. USD-JPY largely matched Friday's lows close to 87.60 in early trade after EUR-JPY fell from 114.70 to 114.10, but it also backed up and ended the European morning close to opening levels, yet off Asian highs around 115.50. It was a quiet data calendar today. Eurozone January investor confidence jumped to -7.0 from -16.8 in December and eurozone PPI decelerated to 2.1% y/y from 2.6%, previously. Meanwhile, U.K. PM Cameron played down a potential U.K. rating downgrade and said interest rate levels are the real test. In Asia, Japan PM Abe reiterated deflation fighting rhetoric, yet market impact was muted.

[EUR, USD]
EUR-USD made an early test of lower levels as equity markets in Asia struggled to rally. EUR-USD moved into 1.3015 after it pulled back from 1.3080 in Asia on EUR-JPY sell-interest. Friday's test of lower levels was unsustained due to reserve management bids and bargain hunting after 1.2980 support held. Failure to maintain a move into 1.3000 and below is likely to confirm more range bound trading and EUR could drift back towards the 1.3080-00 region, where intra-day offers are. In the options space a large 1.3000 strike is rolling off, which will add to support on dips, while more modest expiries are noted at 1.3050 and 1.3100. Helping the EUR find support on dips is the jump in eurozone investor sentiment in January. Financials are also performing well after the Basel commitee agreed to give banks another four years and increased flexibility to meet new capital rules.

[USD, JPY]
USD-JPY headed back to Friday's lows by early Europe, with short term sellers noted from 87.85 after it started the session underneath 88.00 after profit taking went through in Asia. EUR-JPY took another leg lower and headed to 114.10 from 114.70, which weighed on USD-JPY. Apart from short term repositioning via USD-JPY there is still an absence of wholesale change in market positioning. Japanese policy risk encourages dip buying, though market reaction to the latest deflation fighting rhetoric is less pronounced, which suggest a 2% inflation target may be fully priced in. A USD-JPY move through 87.50 could fuel a more extended correction, but bias is still skewed to movement over 88.00. Higher up, outstanding option structures are still alive from 88.50.

[GBP, USD]
Cable continued to find support ahead of 1.6000, which reinforced expectations that the FX majors are in range trading mode. Buyers were noted from 1.6020 in early Europe just ahead of Friday's base after it pulled back from 1.6080 in Asia. The risk backdrop is restrained today, which is favourable for the dollar, but there is a lack of momentum to break 1.6000, which has been an area where corporate hedging and reserve management flows are tipped. A survey published by Deloitte said that large U.K. firms plan to further boost their balance sheets this year because of continuing uncertainty about the U.K. outlook. The focus is on cost control and cash flow rather than a boost to investment.

[USD, CHF]
USD-CHF extended gains to trade at 0.9300 on Friday, which are its best levels since December-12. The move was a symptom of the moderation in risk appetite as markets reassessed the U.S. fiscal cliff deal. There is also some uncertainty still surrounding the eurozone outlook despite the recent narrowing in yield spreads. The pick up in the dollar has fueled reserve management rebalancing and sellers are camped across 0.9300 and at 0.9330, which have capped. On the downside support is anticipated into 0.9230 and 0.9200. At current levels the tone is neutral.

[USD, CAD]
USD-CAD traded at much lower levels on Friday after the stronger Canadian jobs data. Longs that played the move up through 0.9920 got caught offside after it plunged to 0.9850. Stops were filled on the way down through 0.9850 before buyers returned. It closed out the North American session at 0.9880, but the downturn has damaged the recent uptrend and should fueled selling pressure on upticks. The strong December employment report was also supportive of the BoC's mild tightening bias, leaving an upbeat hiring trajectory in place since August and also a CAD$ positive.