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FOREX-Dollar falls as oil jumps, European stocks recover

Published 05/12/2009, 04:26 AM
Updated 05/12/2009, 04:32 AM
SOGN
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* Dollar down as oil at 6-mth high, European shares recover

* Economic data supports commodity FX, high-yielders

* Lingering banking sector worries support yen

(Adds quotes, updates prices, changes byline and dateline. Previous: TOKYO)

By Jamie McGeever

LONDON, May 12 (Reuters) - The dollar weakened on Tuesday as investors shrugged off a modest decline in Asian stocks, taking a more positive view on economic data overnight to buy the euro, sterling and commodity currencies such as the Australian dollar.

A batch of reports -- including British retail sales and housing market data, Australian housing finance and Chinese trade figures -- appeared at first glance to deteriorate but supported the view that the global recession may be bottoming.

A jump in oil prices to a six-month high and recovery in European shares on Tuesday strengthened that view, which was echoed by European Central Bank President Jean-Claude Trichet on Monday who said the global economy is at an "inflection point".

The dollar gave back Monday's gains and the euro resumed its uptrend. Recent breaks of key technical levels on daily and weekly charts are limiting the scope for corrections like Monday's to keep the dollar under pressure and euro supported.

"We keep getting 'green shoots-style' data from different sources, and it is giving some support. We're seeing a little bit of strength in sterling," said Peter Frank, senior currency strategist at Societe Generale in London.

"The Chinese (monthly trade) data was positive in our view. That's good for oil and commodity currencies, and is the sort of news the OECD and ECB are talking about in terms of the recovery," Frank said.

At 0810 GMT the dollar index was down 0.5 percent on the day at 82.42, well on track for its third consecutive close below the 200-day moving average. It's also below the longer-term technical support -- now resistance -- of the 200-day moving average at 82.755.

The euro rose 0.6 percent to $1.3655, approaching the seven-week high at $1.3670 hit on Monday. It's also firmly on track for a third daily close above the 200-day moving average and second straight week above the 200-week moving average.

The euro was up 0.7 percent at 133.23 yen, while the dollar was flat against the yen at 97.50 yen.

The Australian dollar was up 0.75 percent at $0.7642 and sterling was up 0.6 percent on the day at $1.5205.

GREEN SHOOTS HAVE ROOTS

European shares were flat on the day, after having opened lower in sympathy with Asian markets on Tuesday and Wall Street on Monday, while crude oil futures rose above $59 a barrel for the first time since November.

Data from China showed a month-on-month rise in exports, even though the annual figure fell sharply. This was also offset by other data indicating the pace of Chinese fixed-asset investment growth in urban areas has gathered momentum, suggesting Beijing is succeeding in cushioning the effect on the economy of contracting exports. "I think the market has come to a turning point in terms of both technical moves and fundamentals. Stocks and cross/yen have risen, helped by a view that the economic deterioration is slowing," said Jun Kato, deputy general manager at Shinkin Central Bank.

"But fundamentals per se are still weak, so the market is expected to show more vulnerability to the weak side of the economy as it has excessively priced in the positive side of it," he said.

But hopes that the worst of the economic slump and financial crisis are over also remained strong, and that in turn provided some support to the euro and the Aussie, traders said.

"In the bigger picture not much has changed. The green shoots still have roots," said Maurice Pomery, managing director of Strategic Alpha in London.

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