The USD, JPY and CHF are underpinned after risk aversion accelerated on Monday and spilled into the Asian market on the back of eurozone uncertainty, where Spain and Italy are in the spotlight. EUR-USD and the EUR-crosses have seen marked corrective action as recent longs either book profit or significantly reduce exposure. Cable continues to trade heavily, but has experienced a degree of respite due to the EUR-GBP downturn, but long term macro funds are positioning for a protracted period of sterling weakness. One major influence on the outlook will be BoE policy risk and this Thursday's sees the BoE MPC announcement and a testimony to the Treasury Select Committee from incoming BoE Governor Carney. Meanwhile, JPY-cross selling is absorbed by good corporate support in USD-JPY into the 92.00 region after it pulled back from new trend highs just shy of 93.20 on Monday.

[EUR, USD]
EUR-USD and the EUR-crosses traded heavily, which knocked the dollar pairing under 1.3500 and it extended to 1.3480 ahead of the European open. Yesterday's marked widening in eurozone yield spreads on political uncertainty triggered a heavy reduction in long positions, which had seen a significant rise over the last week or so. Stops featured on the way down and were exacerbated by EUR-JPY's fall to 124.25, while EUR-GBP headed to 0.8565 and EUR-CHF moved into the 1.2260 region. EUR-USD may begin to see some natural buyers return, but currently there are likely be steady sellers on upticks after the short term technical backdrop rolled over yesterday and with eurozone uncertainty likely to rumble on for a while.

[USD, JPY]
USD-JPY came under pressure due to a risk-off market, which fueled liquidation via the JPY crosses. USD-JPY challenged 92.00 early on as EUR-JPY weakness weighed. However, there was very good Japanese importer demand at the lows, while the crosses also saw some good movement as speculative unwinding was absorbed by hedge fund activity. USD-JPY rebounded over 92.50 after the Tokyo fix, but the upside is looking a bit more limited due to broader market tone. We still see yen weakness in the coming sessions due to the Japanese policy outlook. OECD's Gurria backed Japan's current stance and agreed that it was going for growth and not just a devaluation of JPY.

[GBP, USD]
Cable is trading on the heavier side due to risk aversion, but it has met buying interest into 1.5700 since yesterday's open from macro funds, while EUR-GBP's correction from 0.8700 to 0.8560 is a supportive influence. Long-term funds are still positioning for further weakness due to a poor outlook, which is widely tipped to trigger more policy stimulus later in the year when Carney takes over as BoE Governor. Carney is due to speak to the Treasury Select Committee on Thursday ahead of the BoE policy outcome.

[USD, CHF]
EUR-CHF was weighed heavily by eurozone uncertainty, which forced a sharp move under 1.2300 on Monday, which extended to 1.2260 by early Europe. The move is a direct consquence of eurozone developments, which highlights just how important this will be for the long-term swissy outlook. There is still optimism that it is over the worst of the crisis, but EUR-CHF longs may be reluctant to add to positions currently. We anticipate offers into 1.2320 and previous support at 1.2330, while natural buyers are noted into 1.2250, which are protecting sell stops below.

[USD, CAD]
USD-CAD is being supported by weakness in equity markets, as well as oil price losses. USD-CAD moved out of 0.9950 on Monday as a result and is trading just a short distance from 1.0000, where a wall of short term offers are noted. The downside is looking hampered due to a decent congestion of bids, which are widely noted from 0.9950 all the way down to 0.9900 from corporate accounts and option names. On the other side of the market, fund and CTA types are seen on the offer from 1.0000 to 1.0010, and protect buy stops above.