JPY traded on an easier footing in quiet European trade. Volumes were light after a limited overnight session due to a Tokyo holiday. In the absence of key market moving data/events interest favoured JPY selling. USD/JPY was able to make up most of yesterday's European afternoon losses and traded up to 117.84, clearing offers between 117.40 and 117.65 in the process.
The market lacked momentum and standing interest ahead of 118.00 from exporters and option accounts capped. EUR/JPY saw a similar theme, carving out a modest rally as speculative accounts and short-term CTAs sold JPY. The cross rose to 156.78 and settled into the mid 156's ahead of the US open. JPY traders have been encouraged by the stabilisation in the global equity markets but attention is firmly on today's FOMC meeting.
Steady rates are expected, with focus on the accompanying statement. Some weakness in recent data highlights the recession risk. This coupled with ongoing sub-prime woes could undermine dollar advances. The Fed should explain how they will try to engineer a soft landing and dovish rhetoric could ensue as a result.
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