After one of the nastiest curveballs in FX trading in recent months on Friday, the majors spent most of Monday session quietly absorbing last weeks moves. On Friday the EUR/USD made a vicious whipsaw reversing by more than 150 points after traders shrugged off  the much lower than expected GDP figures on the assumption that the data will not stop the Fed from raising rates higher. Fed funds futures for the March contract have rallied to 86% from only 53% last week suggesting that the market now assumes that the 4.75% rate is in the bank.  Interest rate differentials have been the central reason for the dollar rally in 2005 and if the Fed goes to 5% money the dollar rally may well continue.

On the other hand, this Friday's dismal GDP result could the first hint  of a serious slowdown in consumer spending. As rates rise, the credit fueled gains of the past two years could unravel fast as consumers' debt service costs skyrocket. Although this week's calendar brings a hailstorm of data including  Personal Spending numbers today and FOMC decision and ISM later in the week, the seminal event in FX is likely to be this Friday's NFP report which can make or break the dollar bull argument. If we see a second consecutive month of sub-par results, greenback longs will have a hard time making a convincing case for continued US growth. Fed fund futures may in fact  retreat from their near certain projection of another rate hike and the dollar bears may quickly reassert control over the pair.  For now however, the EUR/USD appears destined to  tread water as market participants square up ahead of the busy news flow.    

Boris Schlossberg is a Senior Currency Strategist at FXCM.