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The major foreign currenices are little changed against the US dollar as the North American session begins. The Italian vote (9:30 EDT/14:30 GMT) is the key event and news that Berlusconi's ally/rival Bossi, head of the Northern League, called for the PM's resignation increases the probability that the government falls. Meanwhile the new unity government in Greece has not been named. Failure to do so today would be disappointing and raises the prospects of a less orderly demise of the Papandreou government.

The euro is likely to remain confined to the range seen in recent days--$1.3660-$1.3860. The dollar remains confined to extremely narrow ranges against the yen--less than 15 ticks. The BOJ intervention has not been successful in terms of weakening the yen, but it has taken volatility out of the market.

In some ways the political crisis in Greece and Italy is an indication that the late Oct comprehensive agreement is not sticking and this is even before the new EFSF is fully operational and the leveraging not fully determined. The fact the EFSF bond sale was pulled last week and saw what appears to be lukewarm reception yesterday (104 bp on top of mid-swap rates and 177 bp on top of German bunds) and the trending widening premium existing EFSF bonds pay over Germany (more than France) suggests a lack of credibility.

As others have noted, Europe has enough wealth and financial capacity to absorb the losses and address the debt crisis. It does not need foreign money. Details of the EFSF are lacking and the small existing stock of EFSF bonds have not traded particularly well. The owners would be doing better if they had bought bunds.

The SNB has played well with not so of a hand. In word and deed its effort to cap the Swiss franc has proved successful. However, SNB's Jordan is putting some of that at risk today. His comments suggesting that this is temporary (which of course it is, but needn't be said) and that the SNB does not seek a competitive devaluation have dampened expectations that it will lower the franc cap (raise euro-franc floor to CHF1.25 or CHF1.30) and this has seen the Swiss franc strengthen, recouping some of yesterday's sharp losses.

The UK reported its first increase in manufacturing output in four months in September, but the 0.2% increase does not change the underlying trend very much. This coupled with the decline in BRC sales (-0.6% year-over-year in Oct after +0.3% in Sept) and the continued weakness in RICS house price indicator suggests the UK economy is is not far from stagnation. Sterling traded to $1.6100 before coming off a bit. The 200-day moving average comes in near $1.6145 and may off a low risk opportunity to short near there, with stops above $1.6200 for a short-term play and hopes of catching a medium term move.

China allowed its benchmark 1-year T-bill yield fall for the first time in 28 months today. The decline was a single basis point, but the signal was clear. Other money market rates also fell ahead of tomorrow's reportswhich are expected to see CPI fall from 6.1% in Sept to 5.3-5.5%, while investment, industrial production and retail sales remain firm. The decline in CPI is expected to allow officials to begin selectively easing monetary policy.

Disclosure: None

Source: Choppy Calm Ahead Of Potential Storm In Forex Markets