The Asian session was muted this morning due to Singapore's holiday and Monday began with the same debate we left off with on Friday. The US economy has become the only topic that matters to the market with some side chatter on Wheat. The recent run of soft economic data including Friday's disappointing ex-census NFPs falling -131k with private payrolls clawing back only 71k has renewed the markets speculation that further quantitative easy may be necessary. Potentially an Obama-led fiscal stimulus package may be right around the corner.

The shift in expectations has clearly damaged the US Dollar. IMM data, although lagging, is pointing to further short positing on the USD with net USD short contracts up to -91k from -21k a week earlier. The general negative sentiment surrounding the US has been the core driver in our mind. The perception of reality seems to be carrying more weight than the objective data in the current low-volatility environment.

With all the recent positioning, we do believe that the market is getting a bit ahead of itself right now. The primary reason is that recent data has not been that poor and we should naturally anticipate dips in what has been a spectacular rally since mid 2009. Bernanke's recent double dip-ish comments seem to highlight that all the analysis and comparisons to the Great Depression have potentially made him depressed and perpetually viewing the situation as half-empty.

According to the rumor mill, some prominent banks and think tanks are now leaning on the Fed to introduce further QE. The process will likely begin with the Fed announcing that they will reinvest capital to pay downs in the bond market rather than writing down their own balance sheet. While this is not textbook QE, it could be easily seen as the first baby step towards a larger announcement.

However, one needs more economic data or market developments to decidedly fall on one side of the fence or the other. We have not seen any capitulation to double-dip concerns in other markets with risk-correlated assets including commodities and equities. Much to the dismay of the Asian central banks, FX and commodities are continuing their bullish run.

We suspect that this week's FOMC meeting statement will resonate with slightly cautious tone due. Given the uptick in core inflation, we will most likely see the Fed drop any references to soft commodities nor energy price pressure. It's generally believed that the FOMC will keep the extended period language so the big point of contentions for this announcement will be any references to the payback policy.

The other big story this sleepy Monday morning is the USDJPY. With the pair lingering at historically low levels, it's only natural that speculation on possible intervention will increase. As already declared, we feel that the market is underestimating the probability of Japanese intervention. At the conclusion of their two-day meeting, the BoJ should instate policy measures to attack deflation and in turn, weaken the Yen. However, given that the US/Japanese rate differentials are acting as core drivers, we doubt any unilateral action will have a sustained effect on the JPY, especially because US rates are so low right now. The market's reaction to the FOMC statement will be a critical marker to Japanese policy makers of the options they have. Should they attempt to weaken the Yen, it must be in an environment and in a way in which market forces will allow.

Today's light economic calendar will allow the bulls to play a bit and risk appetite should barrel on undisturbed.

Today's Key Issues (time in GMT):
00:00 JPY Singapore holiday.
00:00 EUR BoJ Policy Board begins two-day meeting.
06:00 EUR GER Jun trade balance, E12.5 bln surplus eyed, exp +1.0%, imp -0.2%; last.
14:00 MXN Mexico: CPI, % 0.25 exp, Core CPI .26 exp
23:01 GBP RICS housing market survey, price balance
23:01 GBP BRC retail sales monitor, total sales