Risk appetite was slightly higher, after last week’s aggregative sell-off in the Asian session but the rally has come on thin volume. That said, sentiment remains unsteady over critical issues such as the US fiscal cliff, situations in Greece and Spain, and rising tensions in the Middle East, we suspect that risk currencies will remain under pressure. Regional equity indices were mixed with the Shanghai Composite down -0.31%, Hang Seng up 0.65% and KOSPI up 1.17%. EURUSD began trading at 1.2740 slipped down to 1.2735, before grinding higher to the rest of the session. With much speculation, USDJPY rose to new highs before profit taking, caused by lower expectations of BoJ easing tomorrow, sent the pair lower. There is significant indication that further easing will probably be postponed till the setting up of a new Cabinet after the general elections on December 16. There is a growing consensus that the snap general election on the 16th of December will result in a new lead by opposition LDP administration which would place further political pressure on the BoJ to ease (driven primarily by opposition LDP leader Abe’s comments on monetary policy). AUD was quick to take advantage of the broad weakness in the USD and improved sentiment as the AUDUSD moved from 1.0340 to 1.0378. The weekend was relatively devoid of market moving news flow (the escalating conflict in the Middle East being the exception). The FT ran an article which suggested that the EU was considering making budget without UK. On the data front New Zealand Q3 PPI inputs fell -1.0% q/q, +0.3% y/y, and outputs -0.9%, -0.6%. With a lack of events today the FX market is likely to trade sideways today, stuck between political uncertainty (Middle East Tensions, EU - UK budget, US "Fiscal Cliff" and Japanese snap elections) and indications that global growth is improving. However, while we have not seen much of a spillover effect, risk appetite will likely come under significant pressure should diplomatic efforts to halt the fighting fail and Israel move into Gaza.