JPY extended its corrective rally after LDP Secretary General Ishiba said a weaker yen was worrisome for some industries, which followed Tuesday's warning from Economy Minister Amari. The yen gains weighed on EUR, GBP, AUD and NZD amid JPY-cross selling. Meanwhile, the World Bank cut its global growth outlook for 2013 due to a slow recovery in developed economies, with GDP expected to come in at 2.4% in 2013 from 2.3% in 2012, which compared with a forecast of 3% in June. The China Commerce Ministry said it may still face a severe export situation in 2013 and hopes to maintain measures to increase imports. Economic data highlights included the much stronger than expected 3.9% m/m gain in Japan November core machinery orders, while China 2012 FDI posted its first full year drop in three years by 3.7% at $111.7 bln.

[EUR, USD]
EUR-USD was capped just over 1.3300 in Asia following the late drop in N.Y, which was exacerbated by sell stops after Eurogroup head Juncker said the EUR FX rate was dangerously high, while Spanish PM Rajoy ruled out an aid request. More yen gains triggered extended EUR-JPY losses through 117.00 as speculative funds cut back positions on more balanced Japan FX rhetoric. Short term momentum studies and the daily chart is signaling potential for further corrective EUR-USD action after it failed to reclaim 1.3400 and losses could extend to 1.3250 support. Sell stops will gain prominence below there, along with natural bids between 1.3230 and 1.3200.

[USD, JPY]
JPY gains accelerated after LDP Secretary General Ishiba said that a weaker yen was worrisome for some industries, which echoed Tuesday's remarks from Economy Minister Amari and raised expectations that the LDP are comfortable with a 85-90 range and are managing expectations. USD-JPY dropped sharply from around 88.90 and fell as low as 87.93 on heavy stop loss activity under 88.50 and 88.20. Comments from Juncker on EUR didn't help sentiment either and there was wave of position unwinding in EUR-JPY by short term Japanese funds and specs. Both USD-JPY and EUR-JPY were more broadly balanced by late Asia, with tentative interest noted from bargain hunters, along with Japanese importer demand in USD-JPY. Given the recent volatility JPY may move in a narrower range as we approach next week's BoJ meeting, where an agreement on an inflation target of 2% is now widely expected after recent press leaks.

[GBP, USD]
Cable looks toppish after struggling to reclaim 1.6100 in recent sessions. Sellers are camped across this level, while short term indicators point to another test of support into the 1.6000 area. Sellers are sterling have included macro funds and proprietary accounts that are keying off poor U.K. fundamentals. However, movement lower down has been slow due to residual reserve management flows and natural hedging activity that is anticipated into 1.6000 and below. Cable could also benefit if EUR-GBP corrected some of its recent gains. Currently, it is trading around 0.8275 after it met offers just ahead of 0.8330 on Tuesday. Buyers of the cross in recent sessions has included real money and more than one sovereign name.

[USD, CHF]
EUR-CHF met its first meaningful bout of selling after it briefly breached 1.2400 during Tuesday's N.Y. session. It traded at 1.2414 highs, where a large European names emerged, along with a prime U.S. name on behalf of a macro funds, which took it back towards 1.2360 and it has extended to 1.2350 today. EUR-CHF longs still target an eventual test of 1.2500, where very large option triggers are noted and buyers are noted into 1.2330 and 1.2300. Offers are expected to be sizeable on a 1.24 handle due to very good resistance at 1.2475, along the psychological 1.2500 level.

[USD, CAD]
USD-CAD remained stuck in place overnight, with 0.9830-65 levels largely defining the trading range. The scope for a break of range seems low given the build up of support that is noted from 0.9815 to 0.9800, which has encouraged short covering activity ahead. Offers remain in place from 0.9880 and reinforce activity from short term accounts playing the range.