EUR added to the ECB-inspired rally and JPY plunged after more dovish policy rhetoric and poor Japan current account data. Macro funds added EUR long positions after yesterday's steady policy hand came on a unanimous vote. Japan PM Abe continued to talk tough on policy and suggested that the BoJ should also consider targeting employment. The Japan current account deficit hit Y222.4 bln in November from a surplus of Y376.9 bln in October, which was much larger than expected. Meanwhile, there was increasing expectations that the PBoC will hold off from further policy stimulus after China CPI was much hotter than expected at 2.5% y/y. BoK kept rates steady at 2.75% as expected.

[EUR, USD]
EUR-USD started the session around 1.3250 after it rallied from 1.3180 at yesterday's London close. Heavy fund buying went through after ECB's Draghi offered a more upbeat assessment on the eurozone and confirmed that yesterday's rate decision came on a unanimous vote. In Asia, EUR-JPY demand was very heavy and this had a major impact on EUR-USD as it carved out 1.3280 highs. The cross rallied as high as 118.58 versus 117.00 in early Asia. However, profit taking was sizeable, along with Japanese hedging activity and it pulled back to 117.65. It chopped between this region and 118.20 before settling just under 118.00, which left EUR-USD around 1.3250 at the European open. The EUR trend should remain upbeat in the near-term and dip buying is highly likely.

[USD, JPY]
USD-JPY and the JPY crosses carved out new trend highs following more dovish policy rhetoric from PM Abe and a much larger than expected Japan current account deficit. USD-JPY rallied out of 88.25 to 89.00 in early Asia-Pacific trade and extended to 89.34 highs into the Tokyo fix. Abe suggested that changing BoJ law is still being considered and added that BoJ should look at targeting employment. Large buy stops were flushed out on the way up as more long standing option positions gave way, leaving focus on the 90.00 level, where very large option positions are expected.

[GBP, USD]
Cable has held firm after it moved higher in concert with the euro move. It ramped up through 1.6100 and extended to 1.6180 highs by early Asia-Pacific trade. Buyers of Cable this week have included an Asian reserve manager and a Middle Eastern account. In the near-term dip buying should keep the downside in check. However, poor fundamentals may fueled fresh short positioning from the 1.6200-50 region, where macro funds and long-term hedging may feature. USD-CHF USD-CHF reached 0.9124 lows in early Asia as dollar selling pressure continued to go through following yesterday ECB-inspired price action. The downside in USD-CHF was supported by bids from 0.9120 to 0.9100, along with EUR-CHF firmness just shy of resistance at 1.2150. A move up through this level will target early December highs around 1.2170. Selling pressure may pick up over this level due to long standing 1.2200 option positions. USD-CAD USD-CAD finally cleared away support around the 0.9850 mark and headed to 0.9827 lows by early Asia. Progress around this levels was just as slow though due to a build up of corporate buy order and long term technical levels. It backed up to 0.9845 by early Europe as stock markets corrected in Asia, while there was also interest from short term accounts playing the range. The upside should also remain a tough nut to crack. Option and fund offers are also seen from 0.9880 to 0.9900. Flows have been lacking this week, and until we see volumes come back, range trade looks like the way to go. January 10, 2013 January 10, 2013 1357889223 1357890001 2013-01-11T07:01+00:00 January 10, 2013 10-January (JST) 10-January, 2013 11-Jan-13 07:39 European Edition Russell Bloom Thursday, January 10, 2013 Ronald Simpson +1 813-854-1380 ronald.simpson@actioneconomics.com Russell Bloom +44 20-8559-2103 russell.bloom@actioneconomics.com Jonathan Coughtrey +44 20-3239-6804 j.coughtrey@actioneconomics.com January 11, 2013 January 2013 /reports/eyeonfx/?z=&id=102820 /cms/publish/eyeonfx_main.php?z= /reports/report.pdf?id=102820