USD-JPY made an early push to new trend highs over 93.00 after a Middle Eastern name bought a good amount of EUR-JPY. However, the gains ran their course as political uncertainty in the eurozone weighed. EUR-JPY pulled back to just under 125.90 as broad based EUR long liquidation went through. EUR-USD made a clean break under 1.3600 and extended to 1.3555, with Spanish PM Rajoy under pressure on reports that he took illegal payments. In Italy, the latest polls show that Berlusconi is making up ground on front runner Bersani, which is a negative as it could destabilise the reform process. Elsewhere, GBP was supported on dips by macro demand and EUR-GBP heaviness and saw limited impact from soft U.K. construction PMI data.

[EUR, USD]
EUR-USD pulled back from over 1.3650 in Asia and fell to 1.3555 in Europe amid political uncertainty in both Spain and Italy. Spanish PM Rajoy is embroiled in corruption allegations, while in Italy Berlusconi has caught up in the latest polls, which is a negative for structural reform and policy continuity. Spead widening provided early guidance for short term accounts. There was fleeting support from 1.3600 options and a good EUR-JPY buy order. However, once filled EUR can back under pressure as recent longs booked profit.

[USD, JPY]
USD-JPY extinguished 93.00 barriers and recorded new trend highs over 93.10 after heavy demand for EUR-JPY from a Middle Eastern sovereign. USD-JPY took off from the 92.60 area in early Europe and reached 93.18 highs before it pulled back to 92.80. EUR-JPY rallied from 126.25 to 126.70, but headed under 126.00 as eurozone uncertainty overwhelmed as the European morning progressed. Japan is expected to defend its right to continue to aggressive policy stimulus at the G20 judging by comments last last week and today from Finance Minister Aso. However, as we approach the meeting on February 15-16 FX related comments could pick up from other global leaders. Japan policy makers have said Y95 or Y100 is no problem for Japan.

[GBP, USD]
Cable was supported from 1.5700 at the European open by a macro fund, while a sovereign wealth fund out of the Middle East was also a sterling buyer. Cable moved into 1.5740, though momentum was limited after U.K. construction PMI came in at 48.7 in January, which was weaker than expected, but matched December's 48.7 outturn. EUR-GBP heaviness should also help Cable to a degree after the cross was forced to 0.8625 from 0.8680 amid long liquidation by specs as political uncertainty in Spain and Italy fueled EUR profit taking. GBP is still likely to meet selling pressure upticks, though is in territory now where the frequency of GBP demand by long-term corporates and sovereign names should pick up.

[USD, CHF]
EUR-CHF topped out from the 1.2400 region and headed back towards 1.2350 on general EUR weakness. A pullback in European equity markets boosted the swissy tone, though layered bids from 1.2330 to 1.2300 should limit losses. USD-CHF corrected recent weakness and briefly moved over 0.9100 from the 0.9080 area. On Friday, it threatened the key 0.9000 level, where long term support and very large option positions are noted. The dollar weakened on risk appetite, but USD-CHF in particular, was exacerbated by month end swissy demand. Many market sources anticipate this influence to drop off now and could allow EUR-CHF to strengthen further in the medium term. However, on an intra-day basis the risk backdrop is driving short term flows.

[USD, CAD]
USD-CAD is consolidative after it was unable to sustain Friday's move on parity. Movement has narrowed since it settled back into 0.9960 region. The technical backdrop is supportive, but solid offers at the figure should keep the upside contained and buyers are seen from 0.9950 to 0.9930.