There was volatility ahead of the Asian session open as USD/JPY sold off rather dramatically in extremely illiquid conditions. The subsequent rebound was also just as quick and the pair has since been stuck in a 30 pip range just below 103. The US dollar was weaker -vs- the rest of the majors as well, though the trading activity wasn't as frenzied, as traders sought to position themselves ahead of this weeks central-banker event risk from the RBA, BOJ, FOMC, and the MPC.
Of all the central-banker events on the docket this week, easily the most anticipated will be Bernanke's Congressional testimony and the FOMC minutes on Wednesday. The main driver for the dollar's recent surge has been the back up in US yields due to market expectations that the FED will start tapering their stimulus package fairly soon and any hints that this might actually become a reality could continue to give the US unit a boost. That said, the dollar bandwagon has gotten quite crowded and the risk of a sharp corrective pullback is quite high, especially IF the FED does not comply. According to the latest IMM data, speculative positioning of US Dollar LONGS is at a one-year high and the second highest level on record which might suggest that the market is a bit stretched and thus, ripe for a correction.