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The dollar started the week on a back foot dropping against all the major trading partners and falling especially hard against the yen with USD/JPY hitting a low of 101.69 before finally finding some support.With Japan closed for a holiday and global economic calendar barren of any meaningful data, it's been a generally quiet open to the week, but the downward bias in the buck was obvious from the start of Asian trade.It's difficult to say if today's price action is simply a matter of profit taking in thin market conditions or the result of traders positioning ahead of the FOMC meeting later this week. It's probably a bit of both.The FOMC meeting this Wednesday looms large over the FX market as traders try ascertain if the Fed will finally move to normalize rates. All signs point to another delay in action as recent US economic data has shown a slowdown in demand. Yet the dollar has been stubbornly bid all of last week despite disappointing data as US yields continue to trade off their lows.Even if the Fed does not tighten in September it may signal with a high degree of confidence that it is willing to raise rates by 25bp at the next full meeting in December. That could be enough to rally US yields even higher and provide a basis for a more sustained dollar rally.For now however, the markets remain in a state of tense anticipation as this week brings a slew of central bank activity that includes RBA minutes and BOJ, Fed and RBNZ rate decisions. With some much action yet to come, the placid calm of this morning's dealing will no doubt be shattered by much greater volatility as the week proceeds.For now the market appears to be testing the old technical levels as absence of any news and thin market conditions provide ideal background for stop hunting. With the US calendar also quiet save the NAHB data at 14:00 GMT this dynamic is likely to continue for the rest of the day.
