High yield currencies have given up some of their earlier gains this morning in very thin conditions.  The big news of the session came in Asian hours; Abu Dhabi has pledged $10 bln to allow Dubai World to meet its debt obligations and to allow the company to pay contractors and operating costs until an agreement is met with its creditors.  As stocks in Dubai surged 10%, relief sent banking stocks higher in London and pressured the JPY lower vs the AUD, EUR, GBP and the USD; though the JPY has failed to hold its softer tone vs the USD and the GBP.  This month's decision by the BoJ to provide Y10trn in emergency credit in addition to talk that the Fed may bring forward its first rate hike can both be linked with a softer JPY this month.  Given that short-end Japanese yields are set to stay soft for an extended period there has been a surge in talk that the yen will return to being the funding currency of choice through next year.   That said talk of repatriation is presently supporting the yen and has taken USD/JPY back to the 88.40 level this morning.  The reaction to the BoJ's Tankan report has been mixed.  The headline numbers on the Tankan were mostly better than expected.  However, firms generally failed to fulfil their forecasts from September which has provide fodder to the deflation theme and pulled the Nikkei 225 lower overnight. 

EUR/GBP ran into some sellers this morning ahead of the 0.9050 level.  UK economic news has been mixed.  Overnight Rightmove suggested that house prices fell 2.2% m/m in December which may suggest that the recent stability in the market is losing its grip.  By contrast, the BRC brought some good news in the form of its report that retailing in central London has risen by 13.3% y/y (UK +1.8% y/y).  The publication of the BoE's Quarterly Bulletin suggests that the UK labour market has not fallen as sharply as expected.  However, the export sector has not reacted to the weaker pound as forecast either.  Later this week release of the UK retail sales report for Nov could offer the pound some fresh direction. 

The ECB's Liikanen warned that Greece must take responsibility for its own budget deficit.  These comments are in contrast to those from Chancellor Merkel last week and offer a reminder that there is no precedent within the structure of EMU to deal with a country that could potentially be facing default.  As yet the Greek government has offered no detail on what (painful) action will be taken to restore confidence in its budget and investors can be expected to remain nervous. 

With no key US data due in the front part of this week and with the FOMC scheduled on Wednesday, risk is that conditions remain subdued in the fx market this week.  Canadian Q3 capacity utilisation data is due.