A rally in the USD faltered on Monday with strong U.S. data doing little to lift the currency or convince investors that a slowdown in activity is over. The greenback traded in a narrow range as Japan kicked off a week of holidays, typically a period of thin liquidity that can prompt spikes in volatility.

A Federal Reserve policy meeting and a raft of global data including on U.S. core inflation and payrolls could each be the trigger for big currency swings this week.

All eyes are on the Fed to see what its policymakers made of a first-quarter gross domestic product report that showed strong growth of 3.2%, but largely for one-off reasons including a surge in inventories.

The dollar fell back on Friday despite the upbeat GDP report because core inflation slowed sharply, leading speculators to narrow the odds on a rate cut this year.

Most other major central banks have also turned dovish in recent months, keeping their currencies subdued.

The USD/JPY is underpinned by the huge 111.37 level, last Thursday's low, 30-DMA and a 38.2% retrace of the 109.70 to 112.40 (March to April) rise. We stay USD/JPY long for gains to our 112.50 objective, while our stop was raised to 111.30. A break and daily close below the 111.37 level will weaken the market and shift the overall risk back to the downside.

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