Starting the week on a relatively firm footing versus the dollar, the euro faces some key challenges this week including today’s EU Summit (the 17th in two years), as well as ongoing debt restructuring discussions between Greece and its private sector investors. EU leaders will meet later to finalise the details of a fiscal pact aimed at reining in budget deficits, as well as giving the final sign off to a permanent bailout fund (ESM) with a lending capacity of EUR500 billion ($661 billion). One of the main stumbling blocks ahead of the Summit talks appears to be conflict over a German proposal to have an EU commission review Greece’s budgets, a measure that has been rejected by the Greek Finance Minister. Meanwhile, in terms of euro zone data due this week, markets will be looking for any further suggesting that economic activity in the euro zone could be stabilising.

This is also a key week for the US dollar with markets eagerly awaiting Friday’s release of the first official employment report of 2012. Following on from December’s surprise increase of 200,000, markets will be looking to see whether this performance can be maintained, with consensus forecasts showing a rise of 180,000. The unemployment rate, meanwhile, is forecast to hold at 8.5%. Wednesday’s ADP employment report should provide some advance direction for markets. This week also sees the release of the US manufacturing and services ISMs for January, as well as the Chicago PMI for month. The ISM headline indices are forecast to show activity in both sectors at reasonably robust levels. The employment components, meanwhile, should also provide some direction ahead of payrolls. Finally, markets will be paying close attention to Fed Chairman Bernanke’s comments on the US economy before the House Budget Committee on Thursday.