Dollar Dumped, BoJ and RBA Next

The US dollar gave back almost all of Friday's gains in waves of selling to start the week that weren't triggered by any particular headlines. The Canadian dollar was the top performer on a strong Ivey PMI. Up next, the central bank decisions from Australian and Japan are due. A new set of Premium trades is issued on Tuesday, with the return of EURUSD and GBPUSD trades.

Volatility is definitely back in the FX market and that argues for closely monitoring trades and trends. The dollar fell by more than 100 pips right across the board on Monday but – importantly – the losses were smaller than the gains on Friday. That meant there were no 'outside days' on the charts and argues for further US dollar strength.

The exception was in USD/CAD as the pair retreated 150 pips from Friday's high of 1.1271. That high fell just short of the 2014 high and makes a potential double top. USD/CAD fell after the Ivey PMI rose to 58.6 compared to 53.0 expected.

Other pairs didn't have an impetus but still made solid gains against the dollar as a round of profit-taking in dollar longs hit.

The focus now shifts to central bank decisions in Japan and Australia.

Up first is the RBA announcement at 0330 GMT. The Australian dollar has fallen 5% since the previous RBA decision but that's unlikely to change the line calling for a “period of stability” in rates. It could mean less AUD jawboning and that could aid and AUD relief rally.

Perhaps the more-interesting decision is the BOJ, which is usually between 0230-0400 GMT. Officials have been backing away from yen-weakening rhetoric and Kuroda could lengthen the timeline to achieve 2% inflation. Either factor would be USD/JPY negative and underscore a potential double top on the chart.