Ranges remained narrow in Europe, but the USD was easier against EUR, GBP and CHF on short term repositioning by speculative accounts. EUR started the session above 1.3100 and squeezed up to 1.3140 in Asia after Japan Finance Minister Aso said Japan will buy bonds issued by the eurozone's ESM bailout fund. EUR momentum was restrained in Europe after record unemployment offset strong economic confidence data and a small rise in retail sales. German trade data also indicated a slump in exports due to the drop off in global demand. Elsewhere, Cable consolidated close to 1.6100 after it was unable to sustain overnight highs of 1.6130 and JPY remain steady after it rallied on more profit taking overnight. Another quiet U.S. calendar will see Q4 earnings drive sentiment, along with the unresolved U.S. debt ceiling.

[EUR, USD]
EUR-USD also traded within a tight range in front of 1.3100, where good size option strikes are rolling off. Stable European equity markets underpinned ahead of 1.3100, but equally there was a lack of upward momentum after offers from 1.3140 to 1.3170 capped overnight. Eurozone economic data included a stronger than expected economic confidence reading in December, but retail sales rose just 0.1% and unemployment hit a new record level of 11.8%. Early on in the session Germany trade data highlighted a slump in exports as the German economy struggled due to weak global demand. Narrow ranges may hold ahead of Thursday's ECB meeting. A think tank said yesterday that rates will stay on hold this week, which is in line with our own view, yet also said that the bar for cuts is now higher and will depend on whether there is a further downgrade in growth.

[USD, JPY]
JPY traded on the firmer side on another round of profit taking following similar interest during Monday's session. Market participants cited low exporter interest, suggesting that the moves have been on the back of a reduction of excessive speculative positioning. USD-JPY added to yesterday's pullback from the 88.40 area and moved through 87.30, which cleared out stops through 87.50. Dip buying was evident into this region, but movement back into 87.50 met short term fund offers. The press reported the potential government accord with the BoJ on a revised inflation target, but said it may be announced without any specific level. Meanwhile, the WSJ said some Japanese executives are also warning over JPY weakness going too far, too fast, which could leave the country exposed to soaring fuel costs that would undermine the economy.

[GBP, USD]
Cable maintains narrow ranges relatively close to the 1.6100 region after it was unable to sustain a move on 1.6130 in early Asia-Pacific trade. A EUR-GBP run up to 0.8160 forced Cable back to 1.6075, but mildy supportive short term indicators have fueled dip buying, along with stable equity markets in Europe. Range players are still more inclined to sell into strength following last week's drop to 1.6010 and poor U.K. fundamentals, which continues to fuel speculation of a U.K. rating downgrade. However, at current levels there is a lack of interest. Into 1.6000 and below there are reports of corporate hedging and reserve management flows, while sellers are short term in nature until the 1.6200-50 area, where more macro fund types are noted.

[USD, CHF]
USD-CHF tested the 0.9200 level after the dollar weakened overnight. USD-CHF's move lower came in lockstep on the EUR-USD squeeze up through 1.3100 and extended run on 1.3140. Equity markets are supportive in Europe, which should leave downside risk and sell stops could feature under 0.9200 and January-3 lows around 0.9185. European sentiment has been helped by news that Japan will buy ESM bonds and euro-denominated sovereign debt. There was no impact from Swiss unemployment, which met expectations at 3% sa. EUR-CHF is trading in a narrow range just shy of 1.2095-00 after it edged up from 1.2080 over the last 24 hours on the firmer EUR tone.

[USD, CAD]
USD-CAD turned away from 0.9880 in early Europe and moved into 0.9850, where good support was noted during Monday's session. The move higher in CAD$ came in tandem with firmer equity and oil markets. A further improvement in risk appetite is likely to force a push on support from 0.9835, while bids are tipped at 0.9825 and into 0.9800, which has held since the middle of December.