FX markets are calming down as the volatility-draining tractor beam that is the 24-hour period ahead of a FOMC rate decision fast approaches. The US Dollar (via the DXY Index) has stabilized after its recent selloff carried it to new lows for 2017, with support materializing around its August 2015 lows.

With the FOMC rate decision fast approaching, there are very few data or events that might stir volatility. While it is considered a ‘high’ rated event, the July US Consumer Confidence reading this morning probably the least important ‘high’ rated event on the calendar this week. There has been a longstanding disconnect between sentiment readings and real economic activity, so the data will probably be overlooked if not dismissed by the market.

Although US equity markets are near all-time highs, consistent acrimony in Washington D.C. has probably started to erode otherwise stellar confidence readings (which themselves are near their highest levels since 2000). Regardless of the actual results, the proximity of the release of the confidence report to the FOMC rate decision more or less nullifies its ability to have a significant market impact.

Over the next few days, the canary in the coal mine for FX markets may be USD/JPY. USD/JPY has proven to be highly sensitive to shifts in US yields, given that the Bank of Japan is pegging rates near zero percent. US Treasury yields topped on July 11, the same day as USD/JPY; now that they've rebounded the past two days, USD/JPY's decline has been halted.

Given the broader US Dollar weakness, turn higher in USD/JPY alongside US yields the next few days mean that not only will Gold struggle to break higher, but also that other JPY-crosses may experience gains as well. Certainly, there are JPY-crosses better positioned for gains than USD/JPY at present time; AUD/JPY and CAD/JPY immediately come to mind.