No key data from Japan.

The dollar slightly reversed its 7 days losses against the euro after jobless claims and CPI figures showed some optimism for the US economy. The greenback was hurt by the Philadelphia Fed survey, which stated that the manufacturing in the region shrunk more than expected this month. The US currency has lost 7% of its value vs. the euro and 4.2% against the yen amid investors' pessimism about fast rebounding of the US economy. The dollar fell this week after the IMF said that the US economy's large current account deficit could set the greenback for a sharp depreciation . Overnight, the single currency had soared to a new 5-month high of 92.03, acquiring strength more from dollar weakness rather than from inherent fundamentals. The Bundesbank released its monthly report stating German growth slowed in Q2, and noted there was no evidence of a pickup in German exports. Supporting the recent optimism surrounding the euro were newspaper reports from Taiwan that the central bank, the fourth-largest holder of dollar reserves, was deciding whether to increase its reserves in the euro since currently it holds 70% of its reserves in the greenback. Support is seen at 91.0, 90.75 and 90.20. Resistance is viewed at 91.65, 92.44- the 38% retracement of the downward move from 1.0

The yen fell from two-month highs vs. the dollar after Japan's vice minister for international affairs Kuroda hinted that the central bank could intervene to weaken its currency. Kuroda said that the current levels are particularly inappropriate and that the government is closely watching the forex and will take appropriate measures if needed . The BoJ Governor Hayami said the strong yen hurts Japanese exports and economic growth prospects. The government revised Japan 1Q real GDP up to +0.1% on quarter (from preliminary 0.2%) showing that the economy was in better shape than thought due to the positive change in consumer spending. This means that although it is likely that the 2 Q GDP data due on September 7 will show a negative number Japan will avoid technical recession (two consecutive negative quarters of growth) which could help Koizumi plans to tighten fiscal policy and implement structural reforms. The ministry in charge of public management will ask local governments to reduce spending on their own public works projects by 10% from the current fiscal year to a total of 15.75 trln yen in fiscal 2002. The second meeting between PM Koizumi and US President Bush is scheduled from October 16-18 and it will be held in Kanagasawa Prefecture, a courtesy to Bush for inviting Koizumi to Camp David. Resistance is eyed at 120.25, 120.60 and 121.0. Support holds at 119.0, 118.80 and 118.0.

This week's remaining key US economic indicators include international trade and the University of Michigan Consumer Confidence Survey, both of which will be carefully analyzed for their implications about the state of the US economy. International trade balance is expected to widen to $ 29.5 bln from $ 28.3 bln as US export demand falls off in the face of a global slowdown. US Consumer Sentiment is forecasted to fall to anywhere between 91.5-92.0 in August from 92.4 in July reflecting the slew of layoffs and falling stock prices. In tomorrow's release of Euroarea HICP, inflation is seen to have eased to 2.8% y/y in July from the previous 3.0%, or to 0.1% m/m from the previous 0.1%. Core HICP is likewise projected to confirm subdued price pressures by slipping in July to 2.0% y/y from 2.1% in June, or to 0.1% m/m from the previous 0.2%. The benign inflation will be taken as a positive sign by markets that the ECB will have leeway to cut interest rates. Other economic highlights due this week from the Eurozone consist of French employment, French industrial production, and Italian CPI.