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Euro Flirts With Strength; USD Bucks Higher

The euro is now poised to turn in its best week of 2010, but its longer-term trend remains a weakening one, given the bloc's unresolved fiscal crisis.

The U.S. dollar rose against most major currencies on Friday as a bout of profit-taking on its declines yesterday supported the greenback. On Thursday, the greenback had fallen to its lowest level in at least a week against the majority of its main counterparts as a series of upbeat economic reports from around the globe eased fears that Europe's fiscal troubles would slow the world economy.

The euro hung on to modest gains against the U.S. dollar, though its upside ran into technical resistance, slowing its upward momentum. Still, Europe's shared currency is on pace to turn in its best week of the year against the greenback, firming about 1.5%. Nevertheless, most investors expect the common currency's longer-term downward trend to remain in place on persistent concerns about the continent's debt crisis.

The British pound had strengthened against the U.S. currency and hit a 19-month peak against the euro, boosted by higher global stocks and improved risk sentiment. However, the UK pound did a U-turn after British industrial production surprisingly declined on the month in April.

The Australian dollar fell against the greenback on profit-taking after the Aussie buck notched its best week in five months against its U.S. rival. The Canadian dollar fell off Thursday's three-week high against the U.S. dollar, hurt by weaker commodity prices. Oil, one of the nation's key resource exports, fell toward $75 a barrel, a loss of about 0.6% to start the week's final day of trading.


: The euro held on to slight gains against the U.S. dollar as an overall upbeat level of investor confidence sapped the greenback of some of its safe-haven appeal. The euro also drew support from successful auctions by Italy and Spain this week to sell government debt to bolster its finances. The ability of some of the bloc's heavily indebted nations to find decent demand for its government bonds suggest that investors have more confidence in their ability to manage their deficits.

The European Central Bank also deserves some of the credit for this week's well-received bond auctions as the central bank has purchased massive amounts of euro zone debt (more than 40 billion euro through June 4) in an effort to hold down borrowing costs. Underscoring the euro's recovery off Monday's four-year low against the dollar, the single currency is now poised to turn in its best week of 2010 -- rising about 1.5%. Still, euro/dollar is down about 1.5% in June and off by nearly 16% for the year. Many investors expect the single currency's longer-term trend to remain a weakening one, given the bloc's still unresolved fiscal crisis.


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: The British pound had enjoyed a buoyant tone against most of its main rivals overnight when it strengthened to a 19-month peak against the single currency. Higher stocks and risk appetite where behind its advance yesterday and overnight. However, the pound reserved course after UK industrial production unexpectedly fell by 0.4% (m/m) in April, which suggested Britain's frail recovery might be losing momentum. Investors had expected the key manufacturing data to rise by 0.4% (m/m) in April after gaining 2.0% (m/m) the month before.


: The Australian dollar edged off Thursday's one-week high against the dollar on profit-taking. Still, the Aussie dollar is set to turn in its best week against the U.S. dollar in five months -- a near 4% rally.


: The Canadian dollar pared some of yesterday's gains when it touched a three-week high against its U.S. rival. Investor sentiment declined on weak U.S. retail sales data, which eclipsed encouraging Canadian data on Friday. Capacity utilization came in at 74.2 in the first quarter, which was above the 73.4 forecast and higher than the previous 71.3 reading. The report is a key gauge that measures slack in the Canadian economy.


: U.S. retail sales unexpectedly fell by 1.2% (m/m) in May, which was well below the expected 0.2% (m/m) investors had expected. The disappointing May number, which slipped into negative territory for the first time since September, was somewhat offset by an upward revision to April's figure to +0.6% (m/m) from +0.4% (m/m).

The dismal report on U.S. consumers -- the main engine that drives the economy -- weighed on market sentiment and boosted the dollar's safe-haven appeal. Investors now turn to the University of Michigan's survey on consumer sentiment, due out at 9:55 a.m. ET.