Euro Continues Gains On Eased Trade Fears

NEW YORK (Dow Jones)--The euro gave up some of its gains after hitting a nine-month high against the dollar Monday, but it still remained higher on the day as risk appetite continued to drive markets.

Concern over a trade dispute between the U.S. and China had led investors back to the safe-haven dollar overnight, causing the euro to open New York trading down on the U.S. currency. The dollar had been under pressure since the euro broke through its summer ranges after the U.S. Labor Day holiday early last week.

But worries over the dispute lifted somewhat after China filed a complaint with the World Trade Organization over a U.S. tariff on Chinese tires, as opposed to issuing unilateral counter-tariffs, analysts said.

"The first fears that hit the market were that maybe this dispute was going to become something much bigger; those fears have kind of dissipated," said Steve Englander, chief currency strategist at Barclays Capital in New York.

That sent investors back to a "risk-on" strategy, propelling the euro to a nine-month high of $1.4654, before the common currency retreated towards $1.46 in late afternoon trading. U.S. stock markets were up modestly Monday.

Commodity-based currencies, such as the Australian dollar and Canadian dollar, remained shaken by the possibility of a trade disruption, analysts said.

The Canadian dollar was hit "because of [the trade dispute's] potential impact on the global recovery and due to fears of the effect of increasing U.S. protectionism on Canadian exports to the U.S.," said currency strategist Camilla Sutton of Scotia Capital in Toronto.

The dollar was at C$1.0834, after stretching as far as C$1.0925 earlier in the session, its highest level against the Canadian currency in more than a week.

Late Monday afternoon in New York, the euro was at $1.4612 from $1.4582 late Friday, according to EBS via CQG. The dollar was at Y91.00 from Y90.64. The euro was at Y132.98 from Y132.21. The U.K. pound was at $1.6562 from $1.6677, while the dollar was at CHF1.0355 from CHF1.0372.

To see the dollar's move against the Canadian dollar, please see:

http://dowjoneswebservices.com/chart/view/2783

Investors Tuesday will be paying close attention to U.S. retail sales figures for August, which are scheduled to be released at 8:30 a.m. EDT. Retail numbers are expected to improve from July. Analysts said the data could move currencies.

If the numbers come in as expected or better, risk appetite should strengthen, lending support to the euro. If the numbers disappoint, investors could again turn to the safe-haven dollar on fears of a stalled economic recovery.

"A weaker number will give grist to those who think this risk rally has run its course and that, ultimately, we're looking at a pretty weak recovery," said Brian Dolan, chief currency strategist at Forex.com in New Jersey.

Traders will be watching a key technical level for the euro at $1.4575.

"As long as we stay above there, we'll probably stay pretty firm," said Andrew Chaveriat of BNP Paribas in New York.