The EUR is still trading defensively as the political vacuum in Italy limits speculative positioning. Another test on the downside overnight met strong support, while a more promising risk backdrop also fueled light dollar selling. Nevertheless, EUR, GBP and AUD are all looking weak on a technical basis and upward momentum is likely to be lacking even if risk appetite was to improve further. In Europe, the focus will come from today's Italian debt auction and yesterday's bill auction saw a pick up in refinancing costs. In the U.K., Q4 GDP is expected to come in unrevised at -0.3%. The impact may be muted though, with data since the start of the year pointing towards stabilisation in economic activity. In the U.S. there is the second part of Bernanke's testimony, but is should be a repeat of yesterday's remarks, which helped sentiment after he backed QE until employment improves.

[EUR, USD]
EUR-USD threated the downside on EUR-JPY selling from mainly specs, which forced it from the 1.3070 region towards 1.3040. Risk remains on the 1.3000 level, but prominent bids underpinned for the second consecutive session, with a series of good technical levels and outstanding barriers tipped. A short covering rally helped it back to 1.3080 by the European open.

[USD, JPY]
USD-JPY and the JPY crosses were a bit weaker overall, though it see good two way action. Into the Tokyo fix yen selling went through, but USD-JPY was limited over 92.20 for the second session and it reverted to 91.60 after range players sold the rally and there were reports of exporter interest and speculative flows. EUR-JPY traded between 119.50 and 120.50, but looked heavy overall just under 120.00 by the Tokyo close. Bloomberg reported that Kuroda was likely to get support for the BoJ Governor position from opposition party DPJ, but Iwata may not getting backing for the deputy role.

[GBP, USD]
Cable tested levels under 1.5100 by late Asia after recent comments from BoE members suggested that more QE is in the pipeline. Movement into 1.5075-80 has been absorbed by very good support from corporate accounts and option names due to outstanding barriers low down. The underlying trend is still skewed to lower levels, but Cable is in territory which represents good risk reward and movement is now likely to be more choppy.

[USD, CHF]
EUR-CHF corrected oversold levels and traded back into the 1.2200 region on Tuesday. Overnight, it maintained a more supportive tone and eyes a push back through offers between 1.2200 and 1.2220. The EUR upside is still limited though as political uncertainty in Italy in keeping bias with safety, which should be more favorable for the CHF. USD-CHF has also only managed a modest rally from the fallout in the EUR as heavy cross flows limited its upside to 0.9340 and it has generally traded a tight range close to 0.9300. Lower down there is support building from 0.9270 to 0.9250.

[USD, CAD]
USD-CAD continues to find a floor in the 1.0250 region after it pulled back from 1.0300 on Tuesday. After reaching trend highs it experienced a correction as risk appetite picked up on better U.S. data and Bernanke's testimony. Bias is firmly on the upside, with good order flow noted all the way down to 1.0225-30. On the topside stops are noted from 1.0310-20, with option barriers reported at 1.0350.