Holiday volumes seem to install holiday-style trading ranges, with EUR/USD moving in a 26 point range overnight.

Interestingly, while we are seeing the technicals breaking down on EUR/CAD and EUR/AUD suggesting on a medium term basis, these will be great shorting opportunities, as EUR/USD is pushing up against the downtrend resistance from late October. The strongest US consumer confidence figures in eight months failed to spark a risk rally, with any positivity neutralised by a worse-than-expected manufacturing print from the Richmond and Chicago district. Has anyone been wondering where banks were placing funds received from the ECB in last week's LTRO? Well it seems some of this money has been parked back with the ECB overnight facility, which pays 25 basis points for the privilege of parking excess cash with it. The record amount (€412 billion) placed with the ECB should be taken as a net negative, as effectively any institution that borrowed at 1% in the recent tender is losing money. This really highlights the reluctance banks have to lend to each other and they would rather take a small loss than go to the inter-bank market.

It will be interesting to see, given the time of year and elevated levels of Italian bond yields how well tonight's sizeable €9 billion 179-day bill and €2.5 billion zero coupon bond auction are received. It is a large amount of supply coming to market, and the recent bout of sovereign bond auctions have been a catalyst for EUR/USD appreciation. This will certainly be the key catalyst to drive risk assets tonight given the lack of data scheduled for release. Worthy of note are reports that Greece is set to hold elections in April, which, given that the current technocrat government is only in power temporarily, should not come as a huge surprise, but the market will start to query who is likely to be the man to step in, and how aggressively he will try to appease the troika. Tight ranges are expected during Asian trade with support seen at 1.3019 ahead of 1.2983 (December 22 and 19 low respectively), while if we see a more bullish tone, 1.3128 (December 22 high) could come into play. ll probably continue to remain bearish heading into the New Year.