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In a quiet session, the EUR/USD recovered ground from $1.2770 to break above $1.2820 and test the $1.2865 level. After that, the euro traded in consolidation mode to close the Monday's session just below the $1.2850 level. The Greenback traded weak on the session and lost ground against its major competitors.

Market activity is gradually returning to normal after Easter holidays with a weak tone for the U.S. dollar as investors were disappointed by the weaker-than-expected ISM manufacturing data. U.S. stocks also traded lower on the day while Australian and European stocks were closed on Easter Monday. Investors are trading focused on the central banks' battery of meetings across the week.

On Monday's U.S. data, the ISM manufacturing index came at 51.3 in March, well below expectations of 54.1 and 2.9 points below the February figure of 54.2. Equities reacted down and the EUR/USD tradeds higher as the ISM data seems to be a bad figure. But Miller Tabak's Chief Economic Strategist Andrew Wilkinson believes the ISM index is less ugly than it actually looks.

Wilkinson states that "manufacturing expansion continued in March" as the index is above the 50.0 mark, and the important "employment gauge resumed its advance." He also points out that "of 18 manufacturing industries, 14 reported growth in March."

Tuesday's docket will be interesting as the RBA will publish its decision on policy rates. In Europe, the Unemployment Change in Spain would precede a batch of final manufacturing PMI prints in the euro area, followed by the jobless rate in Italy and the EMU. German preliminary inflation figures for the month of March will follow, ahead of U.S. Factory Orders.

Remember that according to Reuters, Spain is negotiating a new deficit-to-ratio target as the Spanish government is set to revise down its 2013 GDP forecast to -1.0% from 0.5% expected before. Markets could be nervous on Tuesday, especially in the European session.

The risky USD/JPY

technicals Euro dollar Yen

Looking forward on the week, BK Asset Management's analyst Kathy Lien points out that there are three opportunities in the Forex market this week. "The Top three opportunities in the FX market this week are the Bank of Japan and European Central Bank monetary policy announcements along with the U.S. non-farm payrolls report."

"There's a 60-40 chance that the BoJ will ease this week," affirms Lien. The BoJ "passed on an emergency meeting and could hold off until the end of the month, especially if they are worried about import prices. Given how crowded the short Yen trade is, if the BoJ disappoints and fails to ease this week, USD/JPY could slip down to $92.50. "

The TD Securities team agrees with Lien as believe that the BoJ may be set up to disappoint in a JPY-positive way. "We continue to believe that a lot of negative JPY news (strong monetary stimulus) has already been priced in since the autumn, which means the BoJ may be set up to disappoint (in a JPY-positive way)." In this way, TD securities states that the "USD/JPY currently looks more vulnerable to further weakness."

TD Securities also believes that the ECB will be on hold by now. "The risk of rate cuts continues but we still seem not to see it this week." But "PMIs continue to disappoint and we see the risk of a rate cut as soon as May if the data does not quickly turn as the ECB's forecasts are looking too optimistic."

Finally, on the Non Farm payrolls data, FXstreet.com journalist Katarzyna Komorowska states that "several months of better than expected NFP results seem to be pointing to a steady improvement in the U.S. labor market." According tot Komorowska's report, "predictions of analysts taking part in the forecast report vary widely: from 100K to 300K jobs added."

Meanwhile, USD/JPY traded lower on Monday as the pair declined from $94.35 to lose the $94.00 area and test the $93.15 area where the pair remains moving. On the EUR/USD, the pair managed to recover ground from $1.2770 to consolidate prices around $1.2850.

Source: Forex: EUR/USD Recovers Ground But Risk Is On The USD/JPY