The dollar and yen were steady overall as markets remained cautious as Italy's political vacuum still hampered risk appetite. Markets in Asia were supported after yesterday's firm U.S. data round and testimony from Bernanke, but interest in Europe remained limited. EUR benefited from strong economic confidence data, but was unable to take out the 100-dma at 1.3125. Today's Italian debt auctions saw a rise in refinancing costs, but overall demand for Italian debt was encouraging. GBP benefited from news that Vodafone may put its approach for Kabel Deutschland on hold, as well as an upward revision in U.K. Q4 GDP. The year-on-year reading came in at +0.3% from flat previously, but on the quarter it was unrevised at -0.3%. AUD remained under pressure throughout on negative technicals, which were compounded by a S&P report on the potential threats to Australia's outlook.

[EUR, USD]
EUR-USD threatened the 100-dma at 1.3125 after strong eurozone economic confidence data gave it a boost from 1.3080. The upside was capped by very strong offers and also due to today's Italian bond auction results, which saw a marked rise in refinancing costs. However, market insiders noted very strong demand, particularly in the 10-year segment. Price action is still choppy around the 1.3100 handle due to option expiries and other two-way flows. Longer-term players that played the drop on Monday are beginning to take profit due to very strong support under 1.3050 and growing optimism that if Italy can somehow move through this uncertain period then the eurozone is in good shape to improve this year. Short term accounts are still looking to sell though, buoyed by a weak underlying trend and banking on more eurozone uncertainty.

[USD, JPY]
JPY traded a tight range since the Asian close. USD-JPY interest is limited since it topped out over 92.00 overnight on short term fund selling. The downside met support from Japanese importers, while the long-term policy outlook in Japan has encouraged dip buying into 91.00 since it reversed course on Monday's Italian election woes. EUR-JPY is choppy close to 120.00, with the broader EUR tone driving action. Better eurozone economic sentiment data was mildly supportive and lifted it from 120.00 over 120.30, but the political vacuum in Italy is likely to restrict the upside. Meanwhile, LDP's Sata confirmed that the nominations for the BoJ Governor and deputy roles will be announced on Thursday.

[GBP, USD]
GBP edged higher on M&A news. Vodafone has suspended plans to approach Kabel Deutschland, according to a Bloomberg report, which cited three people familiar with the matter. There is talk that a U.K. clearer, which was a big EUR-GBP buyer on February-13 when the news broke, may have some euros to unwind. The cross dipped from 0.8670 to 0.8635 on the report today, but is well above yesterday's 0.8575 lows on good EUR short covering over the course of Tuesday's session. Meanwhile, U.K. Q4 GDP was unrevised at -0.3% q/q, but was upwardly revised y/y to +0.3% from a flat reading previously. Cable moved up to 1.5145 and later extended to 1.5165 on stop loss activity before bears still faded rallies.

[USD, CHF]
EUR-CHF corrected oversold levels and traded back into the 1.2200 region on Tuesday. Overnight, it maintained a more supportive tone and eyes a push back through offers between 1.2200 and 1.2220. The EUR upside is still limited though as political uncertainty in Italy in keeping bias with safety, which should be more favorable for the CHF. USD-CHF has also only managed a modest rally from the fallout in the EUR as heavy cross flows limited its upside to 0.9340 and it has generally traded a tight range close to 0.9300. Lower down there is support building from 0.9270 to 0.9250.

[USD, CAD]
USD-CAD continues to find a floor in the 1.0250 region after it pulled back from 1.0300 on Tuesday. After reaching trend highs it experienced a correction as risk appetite picked up on better U.S. data and Bernanke's testimony. Bias is firmly on the upside, with good order flow noted all the way down to 1.0225-30. On the topside stops are noted from 1.0310-20, with option barriers reported at 1.0350.