[MARKET ANALYSIS] DXY marginally softened amid lower oil prices, while yen strengthened following confirmation of US-Japan intervention on Friday to curb yen weakness and amid speculation for a third day of intervention

DXY: -0.1%

• Marginally softened following the drop in oil prices and lower yields, but with price action contained amid ongoing Fed policy uncertainty, with a report on Friday noting that Chair Warsh is mulling reducing the frequency of policy meetings. Fed's Barkin also said on Friday that it was a 'close call' whether rates are high enough to bring inflation down, and he didn't know whether he would have joined three fellow regional Fed presidents who voted for higher rates, but think there is a strong case there for adding restraint and taking back some of last year's rate cuts, while Musalem said the sell-off in US Treasuries the past week signalled the need for the Fed to earn its inflation-fighting credibility with interest rate hikes.

EUR/USD: +0.1%

• Ekes mild gains but with upside limited in the absence of any major fresh catalysts from the bloc and after last Friday's whipsawing through the 1.1500 level.

GBP/USD: -0.1%

• Pared some of last week's advances and gave back the 1.3500 status, with weekend newsflow quiet for the UK, although there were reports on Friday that Chancellor Healey told cabinet ministers to prepare for budget cuts.

USD/JPY: -0.7%

• Continued to decline and briefly dipped beneath the 156.00 handle after the US and Japan confirmed they jointly intervened on Friday to curb the yen's weakness, while trader reports noted that some hedge funds were selling USD/JPY, which potentially could be due to speculation of further intervention on Monday given the IMF currency guidelines that classify three days of intervention as a single market operation.

Antipodeans: AUD/USD +0.2% / NZD/USD +0.3%

• Remained afloat amid the softer buck but with upside limited after the miss on Chinese RatingDog Manufacturing PMI data.

Joint US-Japan intervention is the rarest and most consequential variant of FX action; historically it has been reserved for episodes where unilateral Japanese operations failed to turn the trend, and the signal of US participation itself has tended to carry more weight than the size of the flows, since it marks a political ceiling on dollar strength. The IMF guideline treating three consecutive days of operations as a single intervention is a well-known detail that conditions the sequencing: follow-through on a third day confirms the operation is continuing, while its absence raises the question of whether the authorities consider the job done. On prior occasions, the pattern after coordinated action has been an initial sharp move in the yen, then a test of whether the underlying rate differential reasserts the prior trend, with hedge fund selling of USD/JPY the classic first-stage transmission. The counterweight here is the unusually hawkish Fed commentary, where multiple officials are entertaining tighter rather than looser policy, a configuration that widens the very differential intervention is fighting. The tell is whether the Treasury market's response to that commentary, via the long end and the policy path at the front, overrides the intervention effect on the pair. Successive operations with diminishing price impact have historically been the marker that the authorities are losing the battle against fundamentals.