The USD, JPY and CHF are trading on a supportive footing as markets start the European session defensively. Today's economic calendar is thin and the U.S. are also closed for a partial holiday for Martin Luther King Day. Movement in Asia was dominated by position squaring ahead of tomorrow's BoJ policy decision, which has supported JPY. EUR and AUD trade at the lower end of the recent range. Both currencies have the potential for further losses if risk aversion picks up in Europe. GBP has underperformed of late and broke down on Friday after Cable tripped stops below the 200-dma, which forced it to 1.5844 lows. A poor U.K. outlook and EU exit fears continue to weigh. The weekend press said the cold snap in the U.K. could tip the U.K. back into recession due to loss of output.

[EUR, USD]
EUR-USD were relatively choppy ahead of 1.3300. JPY cross selling forced it from 1.3325 towards 1.3300. However, the downside was supported at 1.3300-05, where good sovereign demand emerged on Friday. Corrections in EUR-JPY and EUR-CHF were influential Friday. However, the long-term outlook is still bullish for these crosses and this should support EUR-USD on dips. Eurozone sentiment has also improved, though EUR-USD struggled to overcome very good offers into 1.3400 on Friday, which should mark the top of the range today as conditions are likely to remain limited due to the U.S. holiday.

[USD, JPY]
USD-JPY fell from early highs of 90.25 to just under 89.50 on position reduction and exporter hedging. The Nikkei fall also weighed on the JPY crosses. EUR-JPY dropped from 120.25 to 119.10 and AUD-JPY fell from 94.80 to 94.00. Stops featured on the way down added momentum, but they were not large in size. The expectations are for JPY to weaken in the medium term, though the market will scrutinise the extent of BoJ's easing policy bias tomorrow, which should include the new inflation target. The market is positioned for ultra-easy policy ahead, though recent CFTC data has revealed that yen shorts have been trimmed up in the last couple of weeks.

[GBP, USD]
Cable is weak after it broke the 200-dma on Friday and fell to 1.5844 lows. Light short covering has helped it back towards 1.5900, but the underlying trend and weak fundamentals should encourage selling pressure on upticks. Adding to the poor outlook are triple dip recession fears as the cold snap in the U.K. threaten to impact output. EUR-GBP eyes a move back over 0.8400 after it pulled back from 0.8406 on Friday. Buyers are likely into 0.8350-60.

[USD, CHF]
EUR-CHF retraced the recent rally on fund profit taking and corporate demand for swissy. The cross fell sharply from 1.2570 highs to just under 1.2400. The pace of the turnaround forced out weak longs in EUR-CHF and the tone is more defensive as a result. Selling pressure was noted just over 1.2450 in Asia and early European accounts pressured bids in front of 1.2400. EUR-CHF price action looks mobile though and one leading Swiss name has readjusted a long EUR-CHF trade to target 1.2750 from an intial target of 1.2550. We expect dip buying to continue, with barriers at 1.2575 and 1.2600 a target.

[USD, CAD]
USD-CAD is trading just in front of 0.9900 after it pulled back from 0.9945 highs during Friday's North American session. The move up through 0.9900 is likely to encourage dip buying in the near-term, with longs targeting a test of 0.9970, which were highs from late December. On the downside, support is noted into 0.9870-80, but weak longs are likely to bail if this level gives way. As usual, equity markets moves will have an influence on near-term direction.