Optimism over U.S. fiscal cliff negotiations left the dollar and yen on the softer side. In Europe, short term speculative flows influenced, along with month-end activity. EUR headed towards 1.3000, backed up by EUR-GBP month end demand, which limited the Cable upside to 1.6030. USD-JPY is no longer looking like a one-way bet as weaker technicals and exporter hedging offset real money bids close to 82.00. European data was supportive overall, with Swiss Q3 GDP beating expectations by a wide margin, eurozone economic confidence was stronger than expected and German jobless wasn't as bad as feared. In the U.K., the CBI distributive trades balance improved unexpectedly, but lending data painted a picture of weak consumer lending. The BoE Financial Stability Report concluded that the outlook had improved slightly and also warned over bank capital buffers. A heavy data slate is noted out of North America today. The highlights from the U.S. include Q3 GDP, jobless claims and new homes sales. In Canada, Q3 current account is due, along with industrial product prices.

[EUR, USD]
EUR-USD rallied amid an improvement in risk appetite, leaving it a short distance from 1.3000. Optimism over U.S. fiscal cliff negotiations was supportive, along with a less than expected rise in German jobless. Meanwhile, there was vague talk out of Asia after the close, which suggested that PBoC could widen its FX band. Asian FX reserve rebalancing has featured on the way up after sovereigns were forced into the local market overnight, which reinforces expectations that magnet stops are likely to be a temptation for specs today from 1.3000-20. However, heavy order congestion is noted up to 1.3050 and month end activity is likely to encourage dollar dip buying. Note, buying interest from 1.2930-40.

[USD, JPY]
USD-JPY drifted back towards 82.10 after it ran into offers from 82.20 in early Europe. The JPY crosses are firmer on the improvement in risk appetite, but USD-JPY activity has dropped off amid a weaker technical backdrop and option expiry congestion. It only got limited upside on more LDP Abe rhetoric overnight and dovish remarks from BoJ's Shirai, and is skewed to strikes at 82.00 to 81.50 today. Option traders are already focused on next Tuesday's 81.00 maturities in USD 4 bln that could leave downside risk, though real money demand is reportedly prevalent from 81.70 to 81.50, where buying featured on Wednesday.

[GBP, USD]
Cable was boosted to the 1.6030 area on better risk appetite, but further gains have been restrained by a decent bid in EUR-GBP. The cross moved over 0.8100 amid month end related demand. There is talk that up to EUR 3 bln may be bought in the next 24 hours and this has added to EUR supportive flows and also held GBP back. The U.K. macro picture is also broadly negative, with BoE lending data painting a weak overview of consumer lending. However, foreign investors continue to show appetite for gilts in October, with the fourth consecutive month of purchases (GBP 4.3 bln), though demand is down from last year. The underlying tone for GBP should be on higher levels if risk appetite holds up, but for Cable resistance from 1.6065 to 1.6100 barriers may cap, along with EUR-GBP demand.

[USD, CHF]
USD-CHF is still being influenced by external factors and headed back to 0.9275 after a pick up in global equity markets fueled a pullback in short term dollar long positions. EUR-CHF is still trading a tight range just under 1.2040, though a return of local name bids reappeared after it drifted to 1.2030 yesterday, which were its weakest levels since early September. The swissy saw a muted reaction to the better Swiss GDP outturn, but the economic outlook is still a challenge given the eurozone difficulties. On an intra-day basis, we anticipate a USD-CHF test of good support into 0.9250-55, but overall range bound action is likely to continue, with offers capping towards 0.9330 and into 0.9350.

[USD, CAD]
USD-CAD remained heavier due to a pick up in risk appetite yesterday after positive headlines on U.S. fiscal cliff negotiations. USD-CAD traded into 0.9910 during the European morning as intra-day accounts sold into 0.9930 after good offers capped from 0.9960 yesterday. CAD$ should continue to trade off stock market developments in the very near-term, though Friday's Canada GDP release and next week's BoC will deter heavier CAD$ long position building. Bids are noted at 0.9900 and down to 0.9880, though could be threatened on positive domestic data today and an extended stock market rally.