Market Update 29 August 2008

Asia Session
Published: August 29, 2008 2:47 AM

With the better than expected jump in the US GDP from 1.9% to a respectable 3.3%, the US dollar acted accordingly to the favorable news by pushing EUR/USD from levels near 1.4810 to a low of 1.46771 in NY trading. As Asia's trade day progressed, so did the reversal in Euro, as crude oil inched back from NY losses on continued fears that Gustav has the oil rig rich Gulf of Mexico in its crosshairs. As well, oil looks to continue higher once traders digest a story out of the UK that the Russian Government has contacted some of its state run oil companies about the possibility of turning down the oil spigot to Europe if tensions ever escalate. In Asia the EUR/USD hovered around the 1.4700 level for a good portion of the Asian morning, but then moved higher to just over 1.4750 as the lunch break ended.

USD/JPY made some moves as a good deal of the Japanese data releases this session were favorable. With industrial production, jobless rate and household spending all beating forecasts, it's safe to assume that the Japanese economy may not be in as dire straits as once thought. USD/JPY went from 109.55 early on to a low of 108.95 later in the session; EUR/JPY was victim of uninspired trading as it made its moves early and stuck itself in a 30 pip range for the past four hours. 160.80 was a level as of this writing. In Japan there is also talk that the 10 trillion Yen economic package is close to being unveiled to help grease the wheels in domestic bank lending.

Across the pond in the UK things are a little bleak, as UK housing prices hit their worst level in 17 years and retail sales had a drop not seen in 25 years. After hitting a 2 year low in NY of 1.8238, the pound rebounded to 1.8340 in Asia only to be beaten down from that level to near 1.8280 as breakfast was being served in London. This pair has made some wicked moves as of late, and don't expect that to change any time soon.

Keep in mind that this weekend represents the Labor Day holiday in the US and on Monday equity markets will be closed, however the FX market is business as usual on Monday in Asia. Have a good weekend.

Trade signal 29th of August 2008

EUR/USD
Sell at 1.4720
TP = 60 pips
SL = 1.4760

USD/CHF
Buy at 1.0960
TP = 40 pips
SL = 1.0920

Weekly Outlook

Daily Outlook

Trade Signal 27th of August 2008

EUR/USD
Sell at 1.4710
TP1 = 50pips
TP2= 100 pips
SL = 1.4760
TS 50 pips

GPB/USD
Sell at 1.8440
TP1 = 50 pips
TP2 = 100 pips
SL = 1.8490
TS 50 pips

USD/CHF
Buy at 1.0955
TP1 = 40 pips
TP2 = 80 pips
SL = 1.0915
TS 40 pips

FOREX-Dollar surges, euro hits 6-mth low on grim Ifo

By Naomi Tajitsu

LONDON, Aug 26 (Reuters) - The dollar surged on Tuesday, hitting a six-month high against the euro as the single currency tumbled after surprisingly weak German data raised the spectre of recession in the euro zone and fuelled speculation of interest rate cuts.

The dollar extended its dramatic rally of the past month, hitting its highest this year against a basket of currencies as a disappointing business climate indicator added to the view that economic weakness, once thought to be limited to the United States, is spreading globally.

The Ifo German business climate index in August fell to 94.8 from 97.5 in July, more than the slight dip to 97.1 economists had expected and adding to the view that the economy is in severe slowdown mode and could well enter a technical recession. "It's not a good number, ain't no doubt about that," said Marc Ostwald, strategist at Monument Securities.

"It leaves the euro under a lot of pressure, without any doubt ... Certainly this reinforces the market's view that the ECB's next move will be a cut, not a rise, and that a move may come in the next six months or so."

The euro fell nearly two cents following the Ifo data to hit $1.4583 by 1026 GMT according to Reuters data, down more than a percent on the day to trade at its weakest since mid-February.

The euro is down more than 6 percent this month nd looking set for the biggest monthly fall since its 1999 launch, on the growing view that a weak euro zone economy will prompt the European Central Bank to cut rates despite high inflation.

Adding to the euro's woes on Tuesday were data showing that German GDP contracted in the second quarter for the first time since 2004, while German consumer sentiment worsened more than expected, hitting a five-year low [ID:nLQ127223].

"(R)ight after the ECB rate hike in July, Germany may be falling into recession instead," said Holger Schmieding, economist at Bank of America.

"With Spain turning down, Italy struggling, and France losing a lot of momentum too, a serious German downturn would not bode well for the euro zone as a whole as well, to put it mildly."

DOLLAR SOARS

The dollar index .DXY rose to the year's high of 77.576, helped also by a 1 percent rise in the U.S. currency to 1.1082 Swiss francs as other currencies tracked the euro lower.

The pound fell to its lowest in over two years against the dollar to trade as low as $1.8336 and matched a 12-year low on a trade-weighted basis set the previous session <=GBP>. The dollar was up 0.4 percent at 109.75 yen , heading up towards 110.66 yen hit earlier in the month for the first time since early January.

Also adding to the dollar's rally was a 1.8 percent fall in U.S. crude oil prices CLc1, as falling oil prices are considered a relief to manufacturers in the world's largest oil consuming country.

Ongoing worries that other countries are vulnerable to U.S. economic weakness and jitters about the health of the financial industry weighed on stocks, with European shares falling nearly a full percent, taking a cut from their U.S. and Asian counterparts.

This prompted investors to bail out of risky trades higher-yielding currencies, pushing the Australian dollar to an 11-month low of $0.8495.

High-yielding currencies tend to suffer when risk aversion increases as investors exit trades where they use low-yielding currencies to fund purchases of these assets.

The New Zealand dollar fell around 2 percent, taking it within a cent of a one-year low of $0.6818 hit earlier in the month. The currency fell under selling pressure earlier in the day, when New Zealand posted its highest monthly trade deficit in 11 months in July.

(Editing by xxx)

Trade signal 26th of August 2008

EUR/USD
Buy at 1.4695/1.4700
TP1 = 50 pips
TP2 = 100 Pips
SL = 1.4645
TS 50 pips

GBP/USD
Buy at 1.8460
TP1 = 50 pips
TP2 = 100 pips
SL = 1.8410
TS 50 pips

USD/CHF
Sell at 1.0995
TP = 50 pips
SL= 1.1035

Trade signal 25 August 2008

EUR/USD
Sell at 1.4730
TP = 50 Pips
SL = 1.4780

USD/CHF
Buy at 1.1000
TP = 50 Pips
SL = 1.060

InstaForexTournament

InstaForex Tournament 2008

Start of the Tournament will be 01:00 September 29, 2008 till October 31, 2008. Ending of registration - 23:59 GMT +02 on September 28, 2008. You just need open real account but no need to deposit to be able to register to the Tournament.
Just go to instaforex.com and than "open live account" before you click "register in the tournament" and follow the instruction to fill all required fields.

Prizes of totally $11500 are distributed among:

First Place - $5 000
Second Place - $2 000
Third Place - $1 000
Fourth Place– $500
3 random Extra-prizes - $1 000 every ($3 000 summary)

Trade signal 22 August 2008

EUR/USD
Sell at 1.4880/70
TP = 50 Pips
SL = 1.4930/20

GBP/USD
Sell at 1.8740
TP = 50 pips
SL = 1.8790

USD/CHF
Buy at 1.0885/90
TP = 40 pips
SL = 1.0845/50

Trade signal 21 August 2008

EUR/USD
Today signal :
Sell at 1.4800
TP1 = 50 pips
TP2 = 100 pips
SL = 1.4850
TS = 50 pips

GBP/USD
Today Signal :
Sell at 1.8670
TP1 = 50pips
TP2 = 100 pips
SL = 1.8720
TS 50 pips

USD/CHF
Today signal :
Buy at 1.0935
TP1 = 40 pips
TP2 = 80 pips
SL = 1.0895
TS 40 pips

Trade signal 20 August 2008

EUR/USD
Today trade signal :
buy at 1.4750/60
TP1 = 50 points
TP2 = 100 points
SL = 1.4700/10
TS 50 Pips

GBP/USD
Buy at 1.8610/20
TP1 = 50 points
TP2 = 100 Points
SL = 1.8560/70
TS = 50 points

USD/CHF
Sell at 1.0950/40
TP1 = 40 points
TP2 = 80 points
SL = 1.0990/80
TS = 40 points

Trading Signal 19 August 2008

EUR/USD
Buy at 1.4655
TP1 = 50 points
TP2 = 100 Points
SL = 1.4605
TS = 50 pips

GBP/USD
Buy at 1.8570
TP1 = 50 Points
TP2 = 120 Points
SL = 1.8520
TS = 50 pips

USD/CHF
Sell at 1.1000
TP1 = 40 points
TP2 = 80 Points
SL = 1.1050
TS = 40 pips

Retail Sales (July) Actual -0.1%, Expected 0.0%, Previous 0.3% (Revised up from 0.1%)

Retail Sales (July) Actual -0.1%, Expected 0.0%, Previous 0.3% (Revised up from 0.1%)

Release Explanation: The value of Sales at the Retail level. A very important set of figures that make up a large percentage of consumer spending numbers. Serviced based economies rely on the strength of the consumer to keep things moving along, this therefore impacts PCE and CPI, the Inflationary reports. A currency will be impacted by this report over time as it reveals the strength of the public in their ability, or desire, to spend.

Trade Desk Thoughts: Core retail sales grew 0.4%, just below the 0.5% expected and the June number was revised up t 0.9% from 0.8%. The import price index, based partly on oil, was up 1.7% for July, well above the 1.0% expected while June's number was revised up to 2.9% from 2.6%. In a worrying sign of inflation, import prices swelled 21.6% for the year, the highest in the history of the series, but even excluding oil prices rose 8.0% for the year, the highest in 20 years, as prices of goods from China were up 5.3% for the year. Auto sales were the big drag on the headline number, falling 2.4% for the month and over 10% for the year. The report also indicates that consumers used their tax rebates for more than just gasoline; furniture sales were up 1.0% and sales at electronics stores were up 0.8%.

Forex Technical Reaction: There wasn't a strong reaction to the numbers as oil is trading about 0.7% higher on the day. Traders are also looking at earnings from John Deere, which fell short of analysts' expectations. S&P futures are currently down 7.25 points (0.65%).

Dolar hits six-month high

* Dollar index .DXY surges to 6-month high, up for 8th day

* Euro under pressure as economic worries deepen

* Dollar seen well-positioned as rest of world slows

(changes byline, adds quotes, updates prices)

By Simon Falush

LONDON, Aug 12 (Reuters) - The dollar hit a six-month high against a basket of major currencies on Tuesday, benefiting from weakness in commodities, as investors looked beyond U.S. growth worries to a slowing global economy.

The euro slid to a six-month low against the dollar, while the pound slipped below $1.90 to a 21-month trough, as fears grew that economic malaise in the United States is leading to a broader global slowdown.

The euro has seen a sustained fall since European Central Bank President Jean-Claude Trichet said last week the euro zone economy was slowing more than policymakers had expected.

It has broken a series of key chart levels, convincing some analysts that the dollar may be ending its seven-year slide.

Inflation hedges oil and gold fell, with crude below $114 a barrel CLc1, while bullion hit its lowest in eight months.

"As long as we see commodity prices moving lower ... we still see downside in euro/dollar medium to long term," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.

However he said there was potential for short-term recovery in the euro given technical positioning, and that it should be supported for now at around these levels.

"The move in favour of the dollar over the last week has pretty much come to an end, and with the market being clearly overbought dollar and oversold euro/dollar and so on, I think the risk of technical bounces (for the euro )is significant."

By 1053 GMT, the euro was down 0.1 percent on the day at $1.4890 after touching a six-month low of $1.4812, according to Reuters data.

The dollar index .DXY, which measures the U.S. unit against a basket of six currencies, rose 0.2 percent to 76.362, having hit a six-month high of 76.616.

The index rose for the eighth straight trading day and over that time has surged more than four percent -- on track for its biggest such winning streak in 13 years.

The dollar was steady at 110.13 yen, within striking distance of a seven-month peak of 110.40 hit on EBS the previous day, while the euro was steady at 164.05.

The pound fell to a 21-month trough against the dollar of $1.8970 before recovering slightly to trade at $1.9012.

DOLLAR RISKS

The U.S. economy is still ailing with the financial sector reeling from a year-old credit crisis, but analysts say the outlook elsewhere in the world has buoyed its position.

The euro area and Britain have buckled under the twin strains of higher inflation and fading growth.

However there are still risks for the dollar from U.S. data if it comes in much weaker than expected, with analysts looking to U.S. trade blance data at 1230 GMT for more signs of strain.

"The release could highlight concerns that if the one area of growth for the U.S. economy begins to weaken and the slack isn't taken up domestically, the economy may sink further, which could weigh on the dollar today," said Forex Capital Markets in a note to clients.

Tumbling commodity prices hit the high-yielding Australian dollar, which sank to a seven-month low against the U.S. dollar, also weighed by expectations of lower interest rates. On Monday the Reserve Bank of Australia said the economy seemed to be slowing enough to reduce inflation significantly over time.

Adding to the case for a cut in Australian rates, a key measure of business conditions struck its lowest level in seven years in July as firms reported falling sales and profitability. (For details please double click on.

The Aussie dropped 0.7 percent to $0.8734 after falling as low as $0.8705, its weakest since January. (Reporting by Simon Falush) (Editing by Gerrard Raven)

USD/CHF 12 August 2008

Today signal for USD/CHF
Open sell stop at 1.0868
TP1 = 40 Points
TP2= 80 Points
SL = 1.0908
TS = 40 Points

EUR/USD 12 August 2008

Today signal for EUR/USD

Open buy stop at 1.4892
TP1 = 50 Points
TP2 = 100 Points
SL = 1.4842
TS = 50 points

Forex - Euro off highs as market consolidates after last week's dollar rally

- LONDON (Thomson Financial) - The euro was off its earlier high against the dollar, but the currency markets remained broadly steady, consolidating after last week's sharp rally by the U.S. currency.

Comments by Klaus Liebscher, an ECB governing council member and outgoing governor of Austria's central bank, that there is 'no room for complacency' on euro zone interest rates and high inflation, sparked a short recovery in the euro.

The comments conflicted with those of central bank president Jean-Claude Trichet, who surprised markets on Thursday by giving a downbeat growth outlook for the euro zone, leading markets to write off any chances the ECB might raise interest rates again soon, having increased them by a quarter-point to 4.25 percent in July.

However analysts said there is still scant possibility that euro zone interest rates will again, especially with GDP figures this week set to show growth in the 15-nation single currency zone grinding to a halt.

Peter Stoneham at Thomson IFR Markets said: 'A couple of euro supportive factors helped underpin a euro bounce...however, the market appears reluctant to undo any more of the dollar's recent recovery and as such we are now seeing consolidation.'

EUR/USD 11 August 2008

Today Signal for EUR/USD
Open buy stop order at 1.4995
TP1 = 50 Points
TP2 = 100 Points
SL = 1.4945
TS = 50 points

Good Luck

USD/CHF 11 August 2008

Today signal for USD/CHF
Open sell stop order at 1.0795
TP1 = 40 points
TP2 = 80 Points
SL = 1.0835
TS = 40 points

Good Luck

U.S. Dollar Takes Control of Forex Markets

Looking back at the week, one would have to say that the action on Thursday, August 7 was the set up day for the breakout in the Dollar. Throughout the week the U.S. Dollar had been trending higher, but the U.S. economic news for the week was giving no indication that the Dollar deserved to breakout to the upside.

During the past week the U.S. Dollar was able to withstand heat from mounting losses at Freddie Mac and AIG, poor same store sales from Wal-Mart, and a six-year high in Initial Claims. Lower crude oil helped, but there was always the fear that a geo-political situation would flare up causing it to rally. All of this came to a head on August 7 as the U.S. Dollar was able to shrug off the economic negativity and stand tall while all around was falling apart including the U.S. stock market.

The timeline tells the story for the U.S. Dollar this year starting with the first top in the EUR USD on April 22. That first top was shortly after the G-7 meeting and close to the day Luxembourg Finance Minister Jean-Claude Juncker stated that the Euro's recent advance against the Dollar is not "desirable." Additional comments from G-7 members followed, and the EUR USD started its first major break for the year. Some could say that this was a "verbal intervention" by the G-7. The subsequent break set the range for the next three months. The bottom on May 8 at 1.5283 identified the area traders were going to defend as the market continued to withstand attempts to break this level into June.

The rally from the June 13 bottom at 1.5302 to the all-time high at 1.6038 on July 15, was set up by a series of events including a weaker than expected U.S. unemployment report in June, a rate hike by the ECB on July 3 and the worsening U.S. credit crisis culminating with a Fannie Mae and Freddie Mac "bailout" in the middle of July. Although these up moves made weaker traders nervous at times, comments from Treasury Secretary Paulson reassured Dollar bulls that the administration was committed to a strong Dollar. He called for "confidence" in the Dollar and the U.S. economy.

During the April to July time period one thing became clear: the Commitment of Traders Report for futures contracts started to show net long positions in the Dollar for the first time since 2005. Looking back at the chart formation it now becomes clearer that the top taking place was a distribution of the EUR USD. It seems that that the big money had committed to a long Dollar, and was waiting for the economic slowdown to spread to the Euro Zone. Once the Euro Zone began to experience a slowdown, it just became a matter of time before the short positions that had been built for several months would pay off.

Some can argue that the "top" came to the EUR USD when the Fed stopped cutting interest rates on March 17. This may also be true as the last leg up from 1.3359 started with a surprise interest rate cut on August 16, 2007. There is no question that interest rates will play a part in the strength of the U.S. Dollar as this break develops. Looking at the current chart formation, the first downside objective of this break is 1.4699. After the Fed begins to bring interest rates back to an acceptable level, the EUR USD is likely to retrace the entire rally this past year back to 1.3359.

The USD JPY is expected to remain strong as major technical resistance levels are being penetrated. The strong stock market is also encouraging cash flows from Japan as investors seek higher yielding assets. Finally, the Japanese economy may be on the brink of a recession as the government stated that the economy is "deteriorating."

The GBP USD dropped sharply this week even taking out at main bottom from March 2007 at 1.9181. All indications are that the U.K. economy is headed toward a recession. Low employment, falling consumer confidence and weakness in construction and housing should continue to pull this economy down. Although the Bank of England left interest rates unchanged at 5%, some are calling for the BoE to start aggressively cutting to help stimulate growth. The BoE has chosen to let the situation correct itself out of fear of igniting inflation with a rate cut. Only time will tell if its decision is correct. In the meantime, the GBP USD should suffer more downside action.

The USD CHF rallied sharply higher on the strength in the U.S. stock market and the weakening Swiss economy. Traders used borrowed Swiss Francs this week to finance some of their purchases in the U.S. stock market to take advantage of the higher returns offered by riskier assets. Continue to look at more upside potential as traders gain confidence in the possibility of U.S. economic recovery.

The USD CAD is expected to continue to post gains on the weakness in the commodity markets. Losses in crude oil, gold, wheat and lumber are expected to hurt the Canadian economy in the form of lower exports. The U.S. economy is also expected to start showing signs of strength as the credit crisis seems to have settled down. The strength in the U.S. stock market is also drawing funds out of Canada, putting more downside pressure on the Canadian Dollar. The overall weakness in the Canadian Dollar means that the Bank of Canada is less likely to raise rates until sometime in 2009.

The AUD USD had another down week as the mounting daily losses have added up to the largest break since 1980. Breaking commodity prices, particularly gold and wheat, are helping to slow down this country's economic growth. The Reserve Bank of Australia is leaving the door open to a rate cut later in the year. The acceleration to the downside is a sign that more bearish economic news is expected. Although this market will be subject to periodic short-covering rallies, the long-term trend has been set so be patient and wait for short-covering rallies to initiate new shorts.

The New Zealand Dollar should continue its long-term break as a bad housing market, high unemployment and low consumer confidence are leading traders to believe the Reserve Bank of New Zealand is likely lower rates again in 2008. Reserve Governor Bollard is indicating that he sees room to cut further. There may be technically based short-covering rallies as traders are beginning to believe that this market has dropped too much too soon.

FOREX-Dollar powers ahead, breaks below 1.50 versus euro

* Euro dives below 1.50, 5-1/2 month low versus dollar

* Dollar has biggest daily gain vs euro in 7-1/2 years

* Euro zone economy shows signs of weakness (Adds details, updates prices, changes byline)

By Lucia Mutikani

NEW YORK, Aug 8 (Reuters) - The dollar rallied on Friday, posting its biggest one-day gain versus the euro in 7-1/2 years as the market repriced interest rate views amid signs the U.S. slowdown was spilling over to the global economy.

The greenback traded below $1.50 for the first time since February, with oil prices tumbling below $115 per barrel, adding to the euphoria.

European Central Bank President Jean-Claude Trichet's highlighting of increasing risks to euro zone growth on Thursday had left traders to conclude that monetary policy would have to become looser, analysts said.

Added to that, the Japanese government cautioned the country's economy might be in recession, and one closely watched measure of British house prices showed the biggest monthly fall on record in July.

Monetary easing in the euro area and the UK would narrow the interest rate differential with the United States, a major factor behind the dollar's unprecedented decline.

"Trichet's comments were new and unexpected by the market, said Dustin Reid, foreign exchange strategist at ABN-AMRO Bank in Chicago.

"The market in general is repricing not only the euro/dollar interest rate spread, but reassessing what other major central banks will be doing. That's the key driver for the market today."

Most major currencies, including sterling and the Swiss franc, fell 1 percent or more against the dollar, which some analysts suggest may finally be emerging from a broad downtrend that has lasted almost seven years.

EURO DIVES TO 5-1/2-MONTH LOW

The euro dived to $1.4999 at one point, a 5-1/2-month low and its steepest one-day drop since December 2000, according to Reuters data. It was last trading at $1.5004, down 2.1 percent on the day.

The euro is now about 10 cents below a record high of $1.6038 struck less than a month ago.

The ICE Futures US dollar index, which tracks the dollar's performance against a basket of currencies, jumped to 75.903 .DXY, its highest level since February, posting its largest daily gain since July 2002.

The dollar's rally also has been supported by a sell-off in crude oil. Prices tumbled from a peak of over $147 a barrel CLc1 last month to below $115 on Friday in New York.

Despite the continued fragility of the U.S. financial and housing sectors, the near-term technical picture for the euro and other currencies has deteriorated quickly and further declines are likely, analysts said.

"The trend for the dollar is changing quickly. We are in a situation now in which the ECB is expected to start cutting interest rates, while the Federal Reserve will have to start hiking," said Samarjit Shankar, a currency strategist at The Bank of New York Mellon in Boston.

"That, combined with the drop in oil and other commodities, is giving a big boost to the dollar. This is not just a technical move. Fundamentals are now in place to support a sustained dollar rally," he added.

The euro traded below major technical support to below its 200-day moving average at $1.5225. It has not closed below this technical level since March 2006.

"When you look at ECB rate expectations, the overnight index swap rate shows minus 30 basis points 12 months from now, for the Bank of England it's minus 50 basis points," said Benedikt Germanier, senior currency strategist at UBS in Stamford, Connecticut.

"The Fed is expected to raise 70 basis points 12 months from now."

Sterling dropped to a 17-month low around $1.9146, while the dollar touched 110.37 yen, its highest since January.

"The dollar is, in my view, in a genuine recovery. This trend could run further than many think," said Stephen Jen, global head of currency strategy at Morgan Stanley in London.

The Russian ruble fell to its lowest level against the U.S. dollar in five-and-a-half months, posting its biggest one-day loss in more than eight years on Friday amid escalating geopolitical tensions between Russia and Georgia. (Additional reporting by Vivianne Rodrigues; Editing by Andrea Ricci)

FOREX-Dollar soars to multi-month highs

* Euro falls to five-month low vs dollar around $1.51

* Pound hits 17-month low, dollar flirts with 110 yen

* Some analysts say long-term dollar recovery under way

By Jamie McGeever

LONDON, Aug 8 (Reuters) - The dollar surged on Friday, firmly on track for its biggest weekly rise in 3-1/2 years as fears intensified that the U.S. economic slowdown is spreading around the world.

Most major currencies, including the euro, sterling and Swiss franc, fell 1 percent or more against the greenback, which some analysts suggest may finally be emerging from its broad downtrend that has lasted almost seven years.

On Thursday, European Central Bank President Jean-Claude Trichet highlighted the increasing risks to euro zone growth, Japan's government said the country's economy may be in recession, and one closely-watched measure of British house prices showed the biggest monthly fall in July on record.

Coupled with outright dollar-supportive developments such as a surprising rebound in U.S. home sales Thursday and continued decline in oil prices Friday deeper into technical "bear market" territory, the greenback soared.

Despite the continued fragility of the U.S. financial and housing sectors, the near-term technical picture for the euro and other currencies has deteriorated so quickly that further declines against the now-rampant dollar may be on the cards.

"The contagion is now going global. The data is manifesting itself in economies around the world," said Neil Jones, head of hedge fund FX sales at Mizuho in London.

"The contagion trade is very much factored into the dollar, but not for other economies."

At 1145 GMT the euro down 1.4 percent on the day at $1.5105, a five-month low and down nearly 10 cents from its high hit last month above $1.60.

It fell below major technical support to below its 200-day moving average at $1.5225. It hasn't closed below this technical level since March 2006.

The dollar rose 1.2 percent against a basket of currencies to 75.42 .DXY, its strongest since late February. It is up almost 3 percent on the week, the biggest rise since the first week of January, 2005.

Sterling slid 1 percent to a 17-month low of $1.9217, while the dollar gained as much as 0.4 percent against the yen to 109.95 yen, its highest since January.

LONG-TERM DOLLAR TURNAROUND?

The dollar has recovered a lot of ground since the oil price tumbled from its peak of over $147 a barrel CLc1 last month to around $117 but the moves over the last 24 hours have been pretty staggering.

Investors interpreted Trichet's comments on Thursday, after the ECB left interest rates on hold at 4.25 percent, as a signal policymakers were becoming increasingly concerned with the bleak growth outlook, potentially paving the way for lower rates.

Preliminary data on Friday showed that Italy's economy contracted in the second quarter, and economists think figures next week will show Germany's economy shrinking at an even faster rate [ECON].

The heavy euro selling has soured the currency's technical outlook.

Given the confluence of factors -- dire growth prospects outside the United States, major technical reversals, long-term money managers maybe revising their outlook on the dollar -- some analysts say this dollar move could be significant.

"The dollar is, in my view, in a genuine recovery. This trend could run further than many think," said Stephen Jen, global head of currency strategy at Morgan Stanley in London.

Meanwhile, the Canadian dollar fell to a one-year low against the greenback after data showed the highest Canadian job losses in July in over 17 years.

The U.S. dollar rose over 1 percent to C$1.0679.

The New Zealand dollar was among the biggest losers, falling 2 percent to as low as $0.6985.

EUR/USD 7 August 2008

Today Trade setup on EUR/USD
Open buy stop at 1.5490
TP1 = 1.5566
TP2 = 1.5610
SL = 1.5450
TS = 40 Points

Good Luck

Total profit / loss = -80

Dollar rises to 7-month high vs yen

By Vivianne Rodrigues

NEW YORK (Reuters) - The dollar hit a seven-month high against the yen on Wednesday as a drop in oil prices and renewed expectations of low Federal Reserve interest rates were seen as helping the sluggish U.S. economy.

Demand for the euro fell ahead of the European Central Bank policy meeting on Thursday. The bank is widely expected to leave benchmark borrowing costs unchanged at 4.25 percent.

The Fed on Tuesday also held its benchmark federal funds rate steady at 2 percent and signaled in a statement that it is in no rush to raise borrowing costs higher.

"The U.S. economy is showing some signs of recovery and oil prices falling does help," said Meg Browne, a currency strategist at Brown Brothers Harriman in New York. "Going into the end of the year and into 2009, the tip will be moving in favor to the U.S. dollar."

In midday trading in New York, the dollar traded 1 percent higher at 109.38 yen, the highest since January, according to Reuters data. The dollar was on track for its highest daily gain against the Japanese currency in three weeks.

The dollar's surge "reflects improved risk appetite and fading odds of a Fed tightening," said Ashraf Laidi, chief strategist at CMC Markets US.

The yen also fell against the euro, as gains in European shares whetted investors' appetite for riskier assets, diminishing the Japanese currency's safe-haven allure.

The dollar index .DXY, which tracks the U.S. currency's movements against the currencies of major trading partners, was 0.4 percent higher at 74.223, recovering from an earlier slip.

With the Fed meeting over, investors turned their attention to the ECB's policy views.

"Now the market's attention is shifting to the ECB meeting tomorrow and (ECB President Claude) Trichet is likely to make some pretty hawkish remarks," Browne said. "But he will also have to acknowledge that economic growth in Europe has been pretty slow."

While the rate differentials between the United States and Europe still favor the euro in the short term, Browne said slowing growth in the euro zone will eventually lead the ECB to cut borrowing costs despite worries about inflation.

The euro eased against the dollar and last traded down 0.3 percent at $1.5405, retreating from earlier gains.

A Reuters poll of 61 strategists taken August 4-6 showed most expect the euro to trade at around $1.54 over the next three months, before retreating to $1.50 in six months and $1.44 a year from now.

U.S. crude prices seesawed on Wednesday and last traded 0.8 percent lower at $118.23 a barrel.

With crude oil prices down almost $30 from a record above $147 a barrel in mid-July, and forecasts of zero growth in the euro zone economy in the second quarter, the euro's peak may well have been reached, the poll showed.

Demand for the euro also fell as a report showed German manufacturing orders for June dropped by a sharp 2.9 percent and stoked fears of a sustained period of weakness in Europe's biggest economy.

"European data has been surprising strongly to the downside," currency strategists at UBS AG said in a note. The bank also said that following Tuesday's FOMC statement which was "fractionally less dovish" than expected, it's hard to imagine that the ECB will turn dovish at this point in time.

Any ECB-induced bounce in the euro should offer good selling opportunities, UBS added, given expectations for more weak European data and inflation peaking this quarter.

(Additional reporting by Lucia Mutikani in New York; editing by Gary Crosse)