The greenback recovered against the majors in the Tuesday session following sharply better than expected US manufacturing data, pushing the currency toward the 106-level against the yen and 1.5734 against the euro. The June manufacturing ISM report defied consensus estimates for a deterioration to 48.6 from 49.6 in May, instead climbing above the key 50-level to 50.2 - which distinguishes between expansion and contraction.

Traders will turn to the Wednesday session, with the calendar to include the June ADP payrolls figure, May durable goods, new goods orders and factory orders. The June ADP payrolls figure, often viewed as a proxy for the more closely watched non-farm payrolls, is estimated to decline by 20k, versus a 40k increase in the previous month. Meanwhile, the revised May durable goods orders figure is seen unchanged with a flat reading and factory orders are seen declining to 0.4% for May versus 1.1% previously.

Euro Consolidates

The euro was initially higher following better than expected economic reports from Germany, edging up to a session high at 1.5825. Germany's data included sharply better than forecast retail sales reports, up 1.3% in May versus a 0.6% decline in April and up 0.7% versus a 0.2% drop from the previous year. The June unemployment rate also unexpectedly drifted lower, easing to 7.8% compared with 7.9% from May while the unemployment change declined to -38k from -4k previously.

Traders will focus closely on the ECB's monetary policy deliberation, with the decision slated for release early Thursday morning. Analysts are expecting a 25-basis point increase to 4.25%. Given the steep increases in food and energy prices, inflation in the Eurozone has reached its highest level in 11-years, rising at 4% a year. Recall that in the previous post-meeting press conference, ECB President Trichet suggested that the Bank will likely hike rates at the July meeting. Given the ECB's mandate to maintain price stability and keeping inflation rates of below, but close to 2% over the medium term, with recent data revealing prices increasing at a record pace, markets will pay close attention to comments from Trichet to gauge both the likelihood and scope for any further monetary policy tightening over the remainder of the year. Any hints that additional ‘vigilance' over inflation is necessary will likely fuel expectations for more rate hikes to come, triggering fresh demand for the single currency.