The dollar edged higher against the euro and sterling at the start of the week, benefiting from soft Eurozone and UK economic reports and rising to 1.5469 and 1.9588, respectively. The currency market continues to largely be driven by sentiment over global interest rate differentials as traders closely scrutinize economic reports and gauge the scope and direction of monetary policy moves by central banks.

In the coming week, the key highlight will be the FOMC's monetary policy announcement scheduled for Wednesday afternoon. The market is largely expecting the Fed to stand pat, while the accompanying policy statement will be closely assessed for clues as to when the FOMC will shift to a tightening bias in order to curb inflation. In light of the mixed views revealed in recent Fed speak, the statement will likely express caution over the inflationary outlook while simultaneously attempting to temper market expectations for aggressive policy tightening.

The US economic calendar consist of April consumer confidence, durable goods orders, May new home sales, Q1 GDP, Q1 core PCE, weekly jobless claims, personal income, consumption, personal spending, and the University of Michigan consumer sentiment survey. The data this week will highlight the current dilemma facing the Fed with consumer sentiment, housing and manufacturing likely to remain weak while inflation continues to tick higher. Despite some hawkish rhetoric from the Fed's Lacker, who last week suggested the FOMC needed to aggressively respond to persistent elevated inflation with additional vigilance, given the current soft economic outlook, we see the FOMC holding off until the fourth quarter with only a 25-basis point hike.

Data hits Euro

The euro slumped to 1.5469 versus the dollar following a bout of soft Eurozone economic reports, which tempered expectations for rate hikes from the ECB. Germany's Ifo business sentiment survey fell to its lowest level since 2005 with the June business climate index falling to 101.3, from 103.5 in May. The current conditions component eased to 108.3, down from 110.1 in the previous month.

Meanwhile, the Eurozone manufacturing PMI dipped beneath the key 50-level, which distinguishes between contraction and expansion to 49.1 in June from 50.6. The services flash PMI also contracted, declining to 49.5 versus 50.6 previously. Traders will continue to closely analyze Eurozone economic reports to gauge the scope in which the ECB can tighten interest rates to contain inflation.

EURUSD will find support at 1.55, followed by 1.5470 and 1.5430. Additional floors will emerge at 1.54, backed by 1.5350 and 1.53. On the upside, resistance is seen at 1.5540, followed by 1.55 and 1.5550.