The USD, JPY and CHF are supported as markets traded defensively, with the U.S. closed for Martin Luther King Day on Monday and ahead of the BoJ policy decision. There are huge expectations going into the decision, largely due to the very outgoing policy rhetoric from PM Abe and his deputies. Movement ahead of BoJ was limited to position squaring, which kept supported JPY on dips and in turn capped EUR, GBP and AUD on upticks. The short term technical backdrop tended to drive movement due to a lack of other market moving influences, which kept EUR close to 1.3300 and Cable pressured under 1.5900. EUR-CHF also met selling pressure on strength, which forced it back into 1.2400 after it corrected sharply from trend highs on Friday close to 1.2570.

[EUR, USD]
EUR-USD maintained tight ranges relatively close to the 1.3300 area. EUR-USD edged away from 1.3330 in early Europe and threatened the 1.3300 area amid EUR-JPY repositioning, along with short term EUR-CHF selling pressure. Short term indicators influenced the euro crosses in quiet trade, leaving EUR-USD at familiar levels. The lack of progress on 1.3400 in recent sessions may leave near-term bias on the downside. A 1.3300 test on Friday met a sovereign influence and this could keep movement limited in the very near-term. Position traders will also note that buyers have tended to look to add to positions while 1.3250 holds and this should prove to be a near-term pivot in early action this week.

[USD, JPY]
USD-JPY edged over 89.70 into the N.Y. options cut, where a heavy congestion of strikes rolled off between 89.00 and 90.00. The correction from new trend highs around 90.25, seen in early Asia, extended to 89.34 during the European morning, but real money bids put a floor in place. On the whole, there was no appetite to take on big positions ahead of tomorrow's BoJ policy outcome. There are huge expectations going into the decision, largely due to the very outgoing policy rhetoric from PM Abe and his deputies. The market is pricing in expanded asset purchases of at least Y10 tln, along with an inflation target of 2%. BoJ were struggling to meet the previous 1% target and market participants will look for dovish policy rhetoric to back up the move. Last week Mr. Hamada, who advises Prime Minister Abe, said that USD-JPY at 95 or 100 is no problem for Japan.

[GBP, USD]
Cable is weak after it broke the 200-dma on Friday and fell under 1.5850 lows. Light short covering has helped it back towards 1.5900, but the underlying trend and weak fundamentals encouraged selling pressure on upticks. Adding to the poor outlook are triple dip recession fears as the cold snap in the U.K. threatens to impact output. EUR-GBP eyes a move back over 0.8400 after it pulled back from 0.8406 on Friday. Buyers are likely into 0.8350-60.

[USD, CHF]
EUR-CHF is trading defensively amid early selling from European names. It fell back from 1.2450 under 1.2400 in thin trade as a heavier equity market tone weighs, along with light repositioning from short term funds following Friday's sharp correction from 1.2570 highs to just under 1.2400. The short term technical backdrop is overbought and could see more limited upside, but on the daily chart the long term trend is still skewed to higher levels. We expect dip buying to continue, with barriers at 1.2575 and 1.2600 a target.

[USD, CAD]
USD-CAD is underpinned since it broke above 0.9900 on Friday. After it extended to 0.9945 it headed back to 0.9910 overnight. However, the break higher has reinforced the underlying trend, leaving near-term bias on late December highs at 0.9970. The better than expected Canada wholesale trade data did not have a great deal of impact. Prices backed away from 0.9935 into 0.9925, but overall movement is within a sideways trading pattern ahead of full U.S. trading and the BoC policy decision later this week.