USDJPY has formed lower highs and found support at the 112.00 area, creating what might be a descending triangle pattern. Price is currently testing support and might be due for a bounce back to resistance if it holds.

Stochastic is pointing up to show that buyers are in control of price action, likely allowing the floor to keep losses in check. However, the 100 SMA has recently crossed below the longer-term 200 SMA to signal that the path of least resistance is to the downside.

The dollar was off to a weak start for the year even with a strong showing from equities. Doubts about the Fed tightening pace and another round of jitters from North Korea have prevented bulls from charging.

Meanwhile, the yen seems to be pricing in a potential shift in BOJ policy bias. Late last year, Governor Kuroda spoke of a ‘reversal rate’ or the point in which aggressive stimulus could do more damage than good. Although the latest BOJ decision did not contain much hawkish hints, traders continue to stay on the lookout for potential changes.

Japanese banks are still closed for the holiday today, so there are no major reports lined up from Japan. The US has its ISM manufacturing PMI lined up and analysts are expecting to see a dip from 58.2 to 58.1 to reflect a slower pace of expansion. Of particular interest would be the jobs component as this would serve as a clue for the NFP turnout.

Also due today are the FOMC meeting minutes for December, which might contain more insight on how the central bank could adjust policy in the year ahead. Note that economic projections were revised then and it would be interesting to see the divide between hawks and doves among policymakers.

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