Currency traders will pay very close attention to the upcoming European Central Bank interest rate decision, with the EUR/USD exchange rate hinging on outlook for yield differentials.

Conditions in the US non-manufacturing sectors, which account for approximately 70 percent of total economic activity, are anticipated to have deteriorated during September, as the Institute for Supply Management index is estimated to fall to 54.6 from 55.8.

After US pending home sales for the month of July plummeted 12.2 percent -- the most since the National Association of Realtors started keeping records in 2001 –- to an index reading of 89.9, traders will be keeping an eye on the August report to see if even worse levels are yet to come.

US economic data is likely to send mixed signals once again on Friday, leaving the equity markets to continue their trek higher while allowing the greenback to drift even lower.

Traders may face yet another round of negative US economic data on Thursday, but with equity markets keeping their eyes on the prize of another possible rate cut by the Federal Reserve in October, currency traders may be the only ones paying heed to the news.

The ability of the Fed’s recent policy action to stop a recession is questionable, leaving traders wondering if they will cut rates further even in the face of mounting inflation pressures from food and energy price growth.

Inflation pressures in Canada are anticipated to have eased somewhat during the month of August, as headline CPI is expected to fallen to an annualized rate of 2.1 percent from 2.2 percent.

The FOMC caught investors off guard when they went through with not only a 50bp cut to the federal funds rate, but also a 50bp cut to the discount rate.

Many FOMC members appear very concerned about current conditions and the outlook. With the bank's inflation bias eliminated from their statement on August 17, and the economy steadily deteriorating, there is little doubt that the Federal Reserve will cut the Fed Funds rate on September 18.

On Tuesday, Canadian economic data is expected to be mixed as housing starts are estimated to rise, while the international merchandise trade balance is predicted to narrow.