The dollar was on the defensive against major currencies on Monday, as disappointing U.S. jobs data on Friday highlighted a weakening U.S. economic outlook and added to speculation about further monetary easing.

Market players refrained from chasing prices aggressively, having already priced in some form of modest easing at the U.S. Federal Reserve's policy meeting on Tuesday.

It would be a shock were the Fed to go beyond stating that it will re-invest maturing mortgage-based securities, preventing its $2.3 trillion balance sheet from shrinking, said Tom Levinson, currency strategist at ING.

A downgrading of its economic and inflation assessment may be considered a potential precursor to renewed action in coming months should things not start to improve, he added.

Traders also kept a close eye on the yen, which rose to 85.02 yen versus the dollar on trading platform EBS on Friday, just shy of a 15-year peak of 84.82 yen hit last November.

By 5:15 a.m. ET, the dollar rose 0.1 percent to 85.58 yen. Hefty buy orders were seen in the 84.90-85.00 yen area.

There were substantial automatic stop loss trades that would be triggered just under option barriers at 85.00 yen, potentially triggering a slide further, traders said. More stops were sitting below 84.82 yen.

Option barriers at 84.75 yen were seen rolling off later in the week, traders said.

LONG YEN

Data from the U.S. Commodity Futures Trading Commission on Friday showed currency speculators increased their net yen long positions to the highest level since December.

The market is long yen now which eases some downside pressure on yen crosses. Positions are quite stretched, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Activity was subdued in Asian trade as financial markets in Singapore were shut for a national holiday, while many Japanese investors are away for the summer Obon holidays this week.

Data on Friday showed that overall U.S. non-farm payrolls fell 131,000 in July, while private employment, a better gauge of labor market health, rose a modest 71,000, below forecasts for a gain of 90,000.

The euro was steady on the day at $1.3281, staying within sight of a three-month peak of $1.3334 struck on Friday.

The dollar's general weakness could keep the euro buoyant in the near term, but profit taking on a rally in euro/dollar is expected to increase as the euro approaches the psychologically key $1.3500 level.

That level almost coincides with a 50 percent retracement of the single European currency's fall from a November peak of $1.5145 to a four-year trough of $1.1876 hit in June.

The dollar index was little moved at 80.397 .DXY. Support was seen at the April low of 80.031 and then the March trough of 79.507, analysts said.

The Bank of Japan also kicked off a two-day policy meeting. As long as the yen's climb is gradual, it is likely to keep policy steady when it concludes its meeting on Tuesday, analysts said.

(Graphics by Scott Barber; editing by Patrick Graham)

Inflation