European markets were relatively stable, but the tone was more restrained after risk aversion picked up in N.Y. on Wednesday after U.S. fiscal cliff negotiations stalled. The Greek finance minister Stournaras also warned late on that Greece faced a 'make or break' year, with 'possible risk' of an EMU exit. The USD rallied as specs booked profit on short positions, though this provided an opportunity for bargain hunting, which lifted EUR out of 1.3190 towards 1.3250. JPY was choppy after the BoJ met expectations and increased its asset purchase programme by Y10 tln and signaled it would review the current inflation target at the next policy meeting in January. In the North American session, progress on the U.S. fiscal cliff will dominate, but there is also a full U.S. data calendar to digest, with Q3 GDP and jobless claims the highlights.

[EUR, USD]
EUR-USD edged higher on light flows. Asian interest put a floor in place under 1.3200 in Asia, which encouraged light bargain hunting. A pick up in European stocks also encouraged some dollar selling, though interest is restrained since yesterday's pullback from over the 1.3300 level. On an intra-day basis price action is positive and the correction may have increased the chances of a sustained move higher, but with Xmas holiday almost upon and liquidity a challenge movement will remain choppy. Option expiries lie at 1.3250 and 1.3300 today.

[USD, JPY]
USD-JPY experienced profit taking after the BoJ expanded its asset purchase programme by Y10 tln and the BoJ signaled it would review its current 1% inflation target at the next policy meeting in January. USD-JPY pulled back from 84.40 to 83.90, but steadied around 84.00 as market participants anticipate further policy measures after Abe forms a new cabinet on December-26. BoJ Governor Shirakawa said policy is based only on economy and prices, but cannot deny that it has an impact on FX. He said the inflation target is understood as a flexible measure and it will conclude discussions of the inflation goal next month.

[GBP, USD]
Cable is supported on dips, leaving it close to 1.6270 after a muted impact from below expectations retail sales. However, the ONS said household goods sales showed the strongest monthly rise since February 2010 due to tablet computer sales. Cable met buyers from 1.6250 since late Asia after bargain hunting went through, but EUR-GBP is a touch firmer around 0.8135 following the release. Cable may see limited upward momentum from here after risk appetite stalled yesterday on the U.S. fiscal cliff impasse and failure to take out 2012 highs at 1.6310. Under 1.6250 there are further bids at 1.6220 and 1.6200.

[USD, CHF]
USD-CHF edged back towards 0.9125 after it ran into light selling pressure into 0.9150 in late Asia. Overall, movement is slow after yesterday's rebound from 0.9090 to over 0.9150 as dollar shorts covered on risk aversion. Sentiment in Europe is relatively stable, leaving the technical backdrop to influence. There are offers at 0.9160-70 and on the approach of 0.9200, but the recent break lower points to a test of early May lows around 0.9050 and then the 0.9000 area from late April. EUR-CHF chopped between 1.2075 and 1.2085 since the European open. The downturn in EUR-USD on Wednesday forced the cross from 1.2100, yet still well within the familar range. The above expectations Swiss trade surplus justified SNB's continued policy stance, but it did not really impact the FX market.

[USD, CAD]
USD-CAD was supported into the 0.9850 level in Wednesday's North American session and made its way to highs over 0.9890 by Asia and maintained narrow ranges close to this level in Europe. The rebound from 0.9830-35 this week should see range players sell towards 0.9900 ahead of resistance from 0.9910 to 0.9935. Buyers are likely from 0.9850 to 0.9830, which are protecting good size sell stops through 0.9825.