Activity was limited ahead of Thursday's FOMC policy announcement, while pre-holiday trade is also starting to take hold as market participants wait on U.S. fiscal cliff developments. Dealings were quiet in N.Y. through the session, though as equities posted decent gains on hope for progress on the "cliff" talks, risk appetite improved, which weighed on the dollar and the yen some. EUR-USD managed to move over the 1.3000 mark, peaking at 1.3015, while USD-JPY rallied over 82.55 from opening levels of 82.35. On the economic front, the October trade deficit came in slightly narrower than consensus, while wholesale data soft, bur mostly as expected. Neither data point had much market influence. Trade will likely stay quiet ahead of the FOMC announcement on Thursday afternoon.

[EUR, USD]
EUR-USD took a quick look above 1.3000, but experienced no follow through as specs bumped into an active supranational bank. However, if news flow remains unchanged overnight then buying interest could pick up and stops up to 1.3025 may be threatened. Fund names have still got interest to sell into 1.3040 and 1.3050, but Asian sovereigns have been active hedgers over the last couple of sessions on EUR dips, while hourly and daily studies also point higher now. After several attempts, EUR-USD later managed to reclaim the 1.3000 handle, peaking at 1.3015. Light stops were tripped at he figure, though more selling interest wass touted at 1.3020-40 in afternoon trade, so the pairing doesn't appear likely to race too much higher for now.

[USD, JPY]
USD-JPY was tied between option expiries that rolled off at 10:00 EDTat 82.20 and 82.50. Option traders tipped hedging of barriers that expire next Tuesday from 83.50 by several names. There are a congestion of structures rolling off between 82.90 and 83.50 this Friday, but Tuesday and Friday of next week are also key expiry dates for reverse knock outs from 83.50 up to 84.00. This could contain any knee jerk reaction from a LDP election victory. Risk appetite improved through the session, which put some pressure on USD-JPY, taking it into 82.55 in late trade.

[GBP, USD]
Cable firmed up on Middle Eastern demand, but lacked volume to take out offers into 1.6100. The market is lacking direction at current levels, but a combination of market positioning and slightly better sentiment today ended up squeezing out weak shorts through 1.6100 in N.Y.. However, the overall tone is still bearish under 1.6135 and market participants are still bracing themself for more weak U.K. data this week, which should reinforce triple-dip recession risk. Cable may trade a bit higher, but fading rallies should continue amid weak domestic fundamentals and the drag from external factors, which include the unresolved fiscal cliff and eurozone uncertainty. Under 1.6000 there are good support levels from 1.5990 to 1.5950-60.

[USD, CHF]
CHF weakened after the European open amid SNB policy speculation. EUR-CHF took off from 1.2080 over 1.2125 after UBS confirmed it would introduce deposit fees on CHF balance from December-21, which was widely tipped last week. However, it triggered talk that SNB could introduce negative rates on Friday or raise the floor of the lower limit in EUR-CHF above 1.2000. EUR-CHF extended to 1.2115 on the speculation, though swissy shorts are a bit more contained after getting caught offside last week around 1.2150-70 and on the subsequent pullback below 1.2100. We expect the SNB to maintain policy status quo on Thursday. There are no signs that capital inflows have accelerated and the situation in eurozone is better than it was earlier in the year. Recent moves by UBS and CS on CHF deposits should also deter capital inflows to a degree without the SNB having to act for now.

[USD, CAD]
USD-CAD slipped to session lows after the narrowed Canadian trade deficit, touching 0.9858, after opening near 0.9875. Light stops were reportedly tripped at 0.9860, though follow through was very limited. Option and corporate bids were seen from 0.9850, which put a floor under downside progress. After recovering to near 0.9875 on short covering activity, the pairing turned sideways through the afternoon, trading a 0.9869-70 band.