Europe’s markets look set to have a quiet and mixed session despite a growing weary acceptance that a fiscal cliff deal is unlikely by year end. Europe’s and US markets did close off their lowest levels of the day on Friday, largely on the back of a little short covering, as well as some fairly positive economic data from the US which also helped at the margins. The decline in consumer confidenceis a concern though suggesting the ongoing soap opera in Washington was starting to erode confidence. Trading volumes are likely to be extremely light today even allowing for any noise out of the US, with investors likely to stay on the sidelines. The reality is given that the US government is now closed for the holiday break the likelihood of anything other than soothing procrastination is highly unlikely much before the January 1st deadline. Republican House leader John Boehner continued to express the hope that a deal would be reached by January 1st, urging the President to be more flexible, however his own credibility took a massive knock last week, when he got a bloody nose from his own party after he had to pull a vote on his own Plan “B” which he couldn’t even get his own party to support. This setback has even called into question his suitability to represent Republican interests in some quarters. It now seems that some form of incremental approach might be attempted after the President called for a smaller deal to begin with, while as the deadline approaches we could see both sides attempt to pass legislation on the bits they do agree on. In Europe outgoing Italian Prime Minister Mario Monti indicated that he wouldn’t be standing in the upcoming Italian elections, but that he would serve as a bi-partisan Prime Minister again if asked by interested parties, after the vote. While EU leaders are likely to welcome this I can’t imagine it would go down too well with Italian voters given that, according to polls, only 15% would support him if he stood for PM now, and if asked after the vote he would once again be an unelected leader. EURUSD – last week’s gravestone Doji served as a timely warning of a pullback after last week’s highs at 1.3305, and this could well be confirmed on a break below 1.3160. A close below 1.3170 suggests a deeper pullback towards 1.3020 and then 1.2880. Only a move below the 1.2880 level opens up a move back towards the trend line support from the 1.2050 low, which now sits at 1.2825, and the 200 day MA at 1.2790. GBPUSD – last week’s gravestone Doji and failure to overcome significant resistance at 1.6310 saw the pound slide back below the support at 1.6180 which had acted as resistance on the way up. Trend line support from the 1.5830 lows now comes in at 1.6125, while the key support remains at 1.5980. Only a break through here targets major trend line support at 1.5895 from the 1.5270 lows, the 200 day MA at 1.5880 as well as 1.5660. EURGBP – the single currency continues to struggle with the 0.8165 level with five failed attempts so far, while support at 0.8100 serves to limit the downside. The risk still remains for a move to the 0.8300 level, while a break below the 0.8080 level suggests a move back towards 0.8050 and trend line support from the July lows at 0.7755 which remains the key level for the uptrend to continue. USDJPY – for the US dollar to continue its recent upward momentum it needs to overcome and close above the 200 week MA at 85.05. The 2011 highs at 85.55 are also a key resistance. For this to happen we need to stay above the 83.55 breakout level. A move below 83.55 targets a move towards 82.80 and the flag top breakout.