The USD, JPY and CHF are supported as markets traded defensively, with the U.S. closed for Martin Luther King Day and ahead of tomorrow's BoJ policy decision. Movement in Asia was limited to position squaring ahead of the BoJ outcome, which supported JPY 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. Quiet trade should continue in North America with the U.S. closed. In Canada, manufacturing shipment data is due, but unlikely to be a major market mover ahead of the BoC outcome later this week.

[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 movement is more limited ahead of tomorrow's BoJ policy outcome. The market is pricing in more easing, but the joint statement from the government and BoJ on the BoJ's inflation target is likely to be more important for long term expectations. The market is pricing in aggressive policy ahead, which has seen JPY weaken sharply. USD-JPY started the Asian session at trend highs close to 90.25, but fell back on position reduction and a pick up in exporter hedging. It moved just under 89.50 in Asia and extended to 89.34 after the European open. There are expectations for JPY to weaken in the medium term, but if tomorrow's BoJ outcome does not meet expectations there may be scope for heavy yen gains. Real money have parked bids at 89.30 and into 89.00, while over 90.00 both exporters and option protection is noted from 90.25 to 90.50.

[GBP, USD]
Cable is weak after it broke the 200-dma on Friday and fell to 1.5844 lows. Light short covering has helped it back towards 1.5900, but the underlying trend and weak fundamentals should encourage 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 supported in front of 0.9900 after it broke to 0.9945 highs during Friday's North American session. The recent move up through 0.9900 is likely to encourage dip buying in the near-term, with longs targeting a test of 0.9970, which were highs from late December. On the downside, previous resistance at 0.9900 will encourage buyers, while support is noted into 0.9870-80. Weak longs are likely to bail if this level gives way. As usual, equity markets moves will have an influence on near-term direction.