The European session was relatively quiet. Italy PM Monti's decision to resign weighed on the EUR tone, but it was resilient into 1.2880 despite pressure in Italian markets. This set the tone for Cable, which met persistent demand ahead of 1.6000, while AUD-USD was stable around 1.0480 after it benefited from an encouraging set of monthly data releases from China. USD-JPY was pressured by excessive yen short positions after Friday CFTC data release, but specs are still hanging on for next Sunday's Japan election. Eurozone data confirmed that the eurozone recession deepened in Q4 after Italian and French production contracted sharply, which followed last week's poor German data. North American markets see limited economic data releases. The U.S. fiscal cliff will dominate the U.S. In Canada, housing starts are due and markets will digest the government approval of CNOOC Nexen deal, which is expected to lead to CAD$ inflows.

[EUR, USD]
EUR-USD found support into 1.2880 amid Middle Eastern demand. Short term accounts were caught a little offside after EUR ran up to 1.2918 highs, but underlying weakness forced it back to 1.2900, where it started the European session. The Spanish economy minister said Spain are studying a bailout, but reiterated it will take a decision that is best for Spain. The market became quite bearish on the EUR late last week due to the ECB rate outlook and the uncertain political backdrop in Italy. However, it has shown resilience into the key 1.2880 level, which is reportedly a level for system funds and black box traders, as well as reserve managers. If this level continues to hold them EUR could move a bit higher even with negative news flow. Note offers from 1.2950 and larger interest at 1.2970.

[USD, JPY]
USD-JPY chipped away at the downside to reach 82.27 lows after another rejection over 82.60. USD-JPY got caught long last Friday after U.S. NFP and eased amid option related selling. Next Sunday's Japanese election should limit the downside, with the LDP widely expected to win, which could be the catalyst for a major cultural shift in Japanese policy. Japan's GDP release confirmed that the economy is in recession and the BoJ is justified in more aggressive stimulus, though excessive yen shorts, an overhang of option structures and the near-term FOMC meet may restrict movement early on in the week. Friday sees long standing structures roll off at 82.90-83.50 and as option players hedge for further yen weakness it may become less costly to let USD-JPY break higher into the weekend rather than defending 83.00.

[GBP, USD]
Cable is underpinned ahead of 1.6000. Reserve management flow, option hedging and M&A related activity put a floor in place despite the underlying bearish tone. Cable broke down last week on poor fundamentals and a weak technical backdrop. It seems likely that intra-day accounts will sell upticks towards Friday's European highs around 1.6060 and ahead of the 1.6100 pivot. There are no new fundamental developments to digest. U.K. data this week should reaffirm triple-dip recession risk, which backs expectations for further stimulus in 2013. Under 1.6000 there are good support levels from 1.5990 to 1.5950-60.

[USD, CHF]
USD-CHF hovered around the 0.9350 region in low volume trade, but it maintained largely all of the recent gains following the breakdown in eurozone sentiment. The risk backdrop is still likely to influence near-term action and bias is on last week's highs around 0.9380 and offers from 0.9400. Buyers are seen from 0.9320 in the near-term and through 0.9300. EUR-CHF is on the defensive as eurozone uncertainty drove funds into Swiss safety, leaving the cross around 1.2065 after it was unable to sustain the sharp move over 1.2150 last week. The SNB should reaffirm its commitment to policy stimulus at the end of this week, including the lower limit at 1.2000.

[USD, CAD]
USD-CCAD didn't quite manage at 20 point range through the North American session, and was stuck between 0.9868 and 0.9985. Like other major dollar pairings, there was minimal interest on Monday, though the CAD did manage to hold on to last week's post-jobs report gains. The Canadian jobs surge supported retention of the BoC's tightening bias. In addition, the U.S. jobs report buoyed the CAD as well. Progress on USD-CAD's downside is slow due to support from 0.9865 to 0.9850, but Friday's break down should support selling pressure on upticks and offers are widely tipped from 0.9900-10 and 0.9940-50.