On Monday, the dollar moved lower against the euro and higher against the yen. News on July orders for machinery caused the yen to drop its sharpest in recent weeks. And sentiment that the BoJ will not move interest rates in 2006 was also supported. The euro moved higher from recent lows against both the dollar and the yen after Juergen Stark, an ECB Executive Board member implied that market expectations of a rate hike in the coming month were grounded.

Notable events to keep an eye on this week are a Wednesday speech by Henry Paulson and the US reports on inflation. Paulson, coming from Goldman Sachs, brings much needed "street" credibility in his push for a strong dollar.

In trading, the EUR/USD moved down through the 1.27 mark last week and is currently looking at the same mark as resistance. It's bullish above 1.27 and bearish below 1.2660