Yesterday's encouraging data out of Europe and the U.S. enabled Asia to focus on the positives rather than the lack of progress on the U.S. fiscal cliff and some background concerns that still remain on Greece. There were no big fundamental changes overnight, but the dollar and yen fell on the positive equity market performance in the Asia-Pacific region. Japan industrial production data surprised on the topside and the government announced its widely anticipated second stimulus package, though other data releases from Japan have been poor this week. EUR's lack of downside progress yesterday encouraged short covering, along with heavy demand for the JPY crosses, while some of the activity was pinned on M&A flows via USD-JPY.

[EUR, USD]
EUR-USD bias was turned to the topside after it closed just shy of 1.3000 on Thursday. EUR-cross flows were the main mover in Asia, though the better risk backdrop reduced dollar buying interest. A large Japanese buy order in EUR-JPY was a big driver, while EUR-AUD also rallied out of 1.2350 to 1.2480 on fund demand as short term accounts positioned for AUD weakness ahead of the RBA meeting, along with the improved tone in eurozone bond markets. EUR-USD entered the European open close to 1.3010, though upward momentum is likely to be slow due to heavy order congestion from 1.3030 to 1.3050.

[USD, JPY]
USD-JPY saw strong demand over the Tokyo fix and rose from 82.05 to 82.55. M&A demand was widely tipped, which flushed out stops and turned bias to the topside. However, it ran into offers ahead of 82.60 and large option related interest will feature towards long standing 83.00 barriers. Heavy demand for the JPY crosses was supportive. EUR-JPY rallied out of 106.00 and traded at new trend highs of 107.30 on fund demand, though one name reportedly had the order and it encouraged follow through via AUD-JPY, which rallied 85.60 to 86.10 and GBP-JPY jumped from 131.50 to 132.45. Election hopeful Abe backed away a little from recent rhetoric and said he won't discuss easing methods if he becomes PM, adding it would be left to BoJ, but may include foreign bond purchases.

[GBP, USD]
Cable is supported by the better risk backdrop and is skewed to a test of offers between 1.6060 and 1.6080, along with outstanding barriers at 1.6100. We think that month end flows are likely to distort price action and there is still conjecture that demand for EUR-GBP could go through. However, Cable dip buying should continue intra-day, with support noted into 1.6030 and 1.6000-10.

[USD, CHF]
USD-CHF headed through 0.9250 as the dollar ebbed lower in Asia. The 0.9250 level was a long term trend line and may fuel some two way action, but overall the recent downturn argues for selling pressure on upticks. The anticipated month end dollar inflows have dropped off in the last 24 hours as liquidity dried up and this could also reinforce a test of suport between 0.9230 and 0.9200.

[USD, CAD]
USD-CAD is still inside well worn ranges, between 0.9910 and 0.9960. The pick up in risk appetite in Asia fueled selling pressure into 0.9935, but there was no appetite to test the solid band of corporate bids at 0.9900, which have limited downside momentum for several sessions. CAD$ should continue to trade off stock market developments in the very near-term, though today Canada GDP release and next week's BoC will deter heavier CAD$ long position building in Europe.