Traders will digest a barrage of economic events and data this week with the greenback trading on softer footing early in the Monday session, dipping to 105 against the yen and 1.5835 versus the euro. The US reports released today saw a better than forecast Chicago PMI, which improved to 49.6 from 49.1 and beating out estimates for a decline to 48.0.

Despite the holiday-shortened week in the US, markets will scrutinize several key reports including June manufacturing ISM, May durable goods orders, factory orders, non-manufacturing ISM and the June labor report. Manufacturing ISM in June is seen remaining mired beneath the key 50-level to 49.0 from 49.6 in May. Meanwhile, Thursday's labor report is seen mixed with the unemployment rate improving to 5.4% in June, down from 5.5% in May and non-farm payrolls posting another decline at -43.0k, compared with a loss of 49k jobs a month earlier.

Central bank policy decisions include the ECB and RBA, with only the European Central Bank expected to change rates. The ECB is largely anticipated to raise interest rates by 25-basis points to 4.25%. The key point of focus will be on the subsequent policy statement from Bank President Trichet. Given Eurozone inflation rates at record highs, Trichet's statement will be closely scrutinized for clues as to whether additional policy tightening can be expected. We continue to look for further rate hikes from the ECB and foresee another 25-basis point increase by Q4 bringing rates to 4.5%.

JPY Benefits from Moody's Upgrade

The yen edged higher following Moody's upgrade of Japan's government debt rating from Aa3 to A1, citing resiliency to the global economic downturn and expectations of continued fiscal restraint and consolidation. In the coming session, traders will turn to the Bank of Japan's quarterly Tankan business sentiment survey at 7:50 PM. Consensus estimates are calling for the large manufacturer's diffusion index to deteriorate to 3, versus 11 from Q1.

USDJPY has recovered back above the 106-level, with interim resistance seen at 106.30, followed by 106.70 and 107. Subsequent ceilings are eyed at 107.40, backed by 107.60 and 108. On the downside, support begins at 105.50, followed by 105 and 104.60.