The European morning was quiet overall, with price action influenced by position reduction and a moderation in Asian and European stock markets, which posted modest losses. EUR made an early push higher, but momentum was limited over 1.3050 and it headed back to 1.3000. Eurozone industrial production came out on the weak side, which capped the EUR, though appetite to test the downside was also restrictive due to corporate support. Cable benefited on short covering activity, which boosted it over 1.4950 and forced EUR-GBP under 0.8700. Debt auctions from the eurozone included the first post-bailout auction from Ireland, which saw good demand. In Italy, refinancing costs rose after the recent rating downgrade, but bid-to-cover was satisfactory. The German Schatz auction reflected renewed safe haven activity as refinancing costs dropped.

[EUR, USD]
EUR-USD headed back towards 1.3000 after early macro demand ran out of steam. It posted an early high around 1.3065, but fell short of yesterday's highs around 1.3070-75 due to real money selling. The underlying trend supports EUR selling pressure on upticks, though price action was also a bit jumpy after Italy's Grillo claimed Italy is virtually out of the euro already in an interview with Handelsblatt. There are a congestion of option strikes to contend with today at 1.3000 to 1.3050, which could reinforce rangebound action.

[USD, JPY]
USD-JPY and the JPY crosses experienced profit taking after news emerged of opposition to the BoJ appointments ahead of Friday's official vote. However, overall the correction in JPY has been fairly modest, with Tokyo insiders still anticipating a successful outcome. USD-JPY fell back from over 96.00 in Asia and moved just under 95.50 during the European morning, but large Japanese bids put a floor in place. A build up of offers are noted towards 96.30-40 and over 96.50, where good offers emerged on Monday.

[GBP, USD]
GBP is supported by short covering following Tuesday's drop to new trend lows. Cable hit a 32 month low at 1.4832 after poor U.K. production data, but has backed up on heavy corporate demand and hedging by U.K. pension funds. The recovery gained momentum in Asia from 1.4900 just over 1.4950 and extended to 1.4975 since the European open. The underlying trend should fuel offers towards 1.5000, but trend indicators are severely overstretched and market positioning is excessive at current levels. The WSJ made the case today that it was time to buy GBP. It said that some areas of the U.K. economy are starting to stabilise and there are signs that activity in the housing market is picking up, which could also have a positive impact on the economy.

[USD, CHF]
EUR-CHF is underpinned after it met buying interest into 1.2320 in early trade. It started the session on a more stable footing, which reflected the pick up in EUR-USD amid macro demand. EUR-CHF may struggle to sustain much higher levels from here though due to the underlying EUR tone, which is still skewed to lower levels due to weak fundamentals. USD-CHF benefited on this theme, along with the general dollar bid on the back of improving U.S. fundamentals. It is supported today into the 200-dma around 0.9430 and eyes a move back over 0.9500. After Friday's NFP release USD-CHF reached trend highs just above 0.9550.

[USD, CAD]
USD-CAD traded a tight range overnight after it moved back near the 1.0250 area on Tuesday. Domestic names sold from the 1.0280 area on Tuesday and this should fuel light interest in the near-term. On the downside a move through 1.0250 could potentially fuel more follow through selling amid light stops, but support is also tipped at 1.0230 and 1.0220, which should reinforce the range bound trading theme.