Despite overall strength in the dollar and oil holding sub $110, the precious metal remains relatively resilient and has been underpinned by physical demand. Should that give way and the dollar continue higher, a retest of the Aug 15 lows near $773.90. At current levels, gold is down 21.8% from the life-time high of $1030.80, seen March 17 and down 18.4% from the July 15 peak at $987.75.

BAS sees "renewed weakness and near 1% real GDP growth in the second half of the year. Housing decline, financial stress, and continued high energy and commodity costs continue to exact a toll."

The Dow briefly touches negative ground before recovering to a slight gain. The S&P 500 and Nasdaq are in negative territory. The Nasdaq is underperforming, with notable weakness in tech stocks (-1.1%).
There does not seem to be a specific catalyst that caused the reversal in the tech sector, although Apple (AAPL 166.33, -3.20) is down 1.9% after being up as much as 2.3%.

Goldman Sachs analystssay with crude breaking below $110, there is scope for a move to $98 initially. If that breaks, the next downside target is $85.00, they say.

A break through $1.4555, an extension of a decline from a ``double top'' in the euro-dollar, signaled the European currency may fall to $1.4310, a level last reached in December, wrote Kevin Edgeley, an analyst at Goldman Sachs Group Inc. in London

Broad-based declines have pulled the Nasdaq and the S&P 500 into negative territory. After the early rally faded the major indices have been trending downward, recently dropping to their lowest level of the session.
Making an influential decline is the tech sector, which is the largest sector in the S&P 500. After trending sideways with modest gains it has fallen to a 1% loss.
One of the primary laggards in the Nasdaq is Gilead Sciences (GILD 50.45, -2.23). The biotech and drug company was downgraded at Bank of America to Neutral from Buy.

The dollar rose to the highest level against the euro in almost seven months as crude oil fell and traders speculated that the Federal Reserve's monetary policy will help the U.S. economy outperform Europe and Asia.

The pound fell to a two-year low versus the greenback on evidence a recession in the U.K. is looming. Australia's dollar declined to the weakest level in almost a year after the country's central bank cut interest rates for the first time since 2001 and said economic growth will slow. The pound depreciated as much as 0.6 percent to 81.64 pence per euro, the weakest level since the European currency's debut. U.K. mortgage approvals dropped to the lowest level in nine years and manufacturing contracted, reports showed yesterday.
The Bank of England will keep the target lending rate unchanged at 5 percent on Sept. 4, according to all of the 61 economists surveyed by Bloomberg News.

``The dollar is in an uptrend,'' said Meg Browne, vice president of foreign-exchange research at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Radio. ``Growth and monetary-policy differentials are beginning to shift in favor of the U.S. dollar. The oil story certainly helps.''
Standard Chartered Plc and BNP Paribas SA raised their forecasts for the dollar. London-based Standard predicts the dollar will rise to $1.44 per euro by year-end and $1.36 by the end of the first quarter, compared with previous forecasts of $1.49 and $1.42. BNP, based in Paris, forecasts the dollar will rise to $1.42 versus the euro and $1.71 per the pound by year- end, stronger than $1.45 and $1.88 previously.
The U.S. currency surged 6 percent versus the euro in August, its biggest monthly gain since the European currency's debut in 1999. The economies of Europe and Japan shrank in the second quarter, while U.S. gross domestic product expanded at a 3.3 percent annual pace.
The European Central Bank to hold its main refinancing rate at a seven-year high of 4.25 percent at its meeting Sept. 4.
``The dollar has been depressed for quite some time as the result of the U.S. crisis,'' said Adnan Akant, head of foreign- exchange in New York at money manager Fischer Francis Trees & Watts Inc., with $32 billion in assets. ``Now, this is not the only place with economic woes. From valuation and interest-rate perspectives, the dollar is in a good shape.''

Stocks continue to trade at lower levels. The Dow, however, remains more than 1% higher as 25 of its 30 components trade higher.
The Dow components showing the most weakness are those with involved in energy or other commodities. The largest percentage downturn is currently being incurred by Alcoa (AA 30.82, -1.31). Exxon-Mobil (XOM 78.34, -1.67) and Chevron (CVX 84.22, -2.10) are also being hit as oil prices remain depressed.
Though the Dow is up more than 1%, it is still off its 2.1% advance from earlier.

HFE economist Ian Shepherdson says exports may have peaked "but we don't expect a sudden collapse and the latest numbers are consistent with good core trade numbers through the end of this year at least. Overall, the sector is hanging in, but we expect output to continue drifting lower despite the strong export performance."

MS says "we now see Q3 GDP tracking at +1.2% instead of +0.9%." RDQ Economics says ISM "did little to provide clarity on the economy in the third quarter." BAS says export strength is helping mfg. "While activity remains soft, the factory sector has not persistently declined as in previous recessions."

Stocks trade in a relatively tight range modestly above session lows, although gains remain substantial. The utilities sector (-0.4%) has joined materials (-1.5%) and energy (-3.5%) in the red.
The dollar climbs 0.5%, benefiting from the drop in commodity prices. Since most commodities are dollar denominated and the U.S. is a major consumer, cheaper commodities mean less dollars going overseas, which typically strengthens the currency. The Dollar Index is now up 1.8% year-to-date, and is at its highest level since last October.

The front contract settled at $115.46 on Friday.

The stock market goes on the defensive and then stabilizes near session lows. The S&P 500 is up 0.8%, which is half of its early-morning advance. The energy sector is down 3.5%, which is taking six points from the S&P 500.
Google (GOOG 477.62, +14.33) is outperforming with a 3.1% gain. The search engine giant will release a web browser later today. The browser stands to take some of Microsoft (MSFT 27.59, +0.30) Internet Explorer's majority market share. Presumably, Google's browser will help increase the company's search engine traffic. GOOG was also upgraded to Buy from Hold at Stanford, noting broadening market share gains and valuations near lows.

Analyst TJ Marta says ISM suggests mfg "continues to muddle along at a soft pace." Marta says subindexes were split, with 6 of 10 up "and five remaining in contractionary territory."

Just released, the August ISM Manufacturing Index, a national survey, was nearly flat month-over-month with a reading of 49.9 (50.0 consensus), with prices paid falling 13% to 77.0 (consensus 82.0). A reading below 50 is intended to to reflect contraction in the manufacturing sector.
Separately, July construction spending fell 0.6% (-0.4% consensus) from the upwardly revised gain of 0.3% in June. This report is volatile and subject to large revisions, so it typically has a limited market impact.
The major indices extend their gains and then have a mostly muted response to the economic reports.

EUR/USD: $1.4500, $1.4600, $1.4675
USD/JPY: Y107.90, Y108.00, Y108.80, Y109.30/40, Y110.00
GBP/USD: $1.8200, $1.8300
AUS/USD: 0.8510, $0.8550
Kiwi: $0.6900
AUS/Kiwi: NZ$1.2265

Stock futures suggest a sharply higher open as commodities plummet after Hurricane Gustav caused less damage than expected (S&P futures +14,40, Nasdaq futures +30,75). Crude oil prices are down 7.0% to $107.34 per barrel. Gasoline (-6.6%), natural gas (-6.6%), corn (-4.7%) and gold (-3.1%) are also posting steep declines. In corporate news, Korea Development Bank confirmed that it is in talks to invest in Lehman Brothers, which follows weeks of speculation that the two firms were in discussions, according to reports. No major companies are reporting earnings this morning. On the economic front, the construction spending and ISM Index reports are set for release at 14:00 GMT.

Pushes above reported resistance at $1.7850, but seen running into further supply ahead of $1.7860 ($1.7862 50% $1.7940/1.7784). A break above here to open a move on toward $1.7880. Bids now seen placed back at $1.7820.

The dollar rose to its highest level in almost seven months against the euro on speculation oil prices near a four-month low will support economic growth in the U.S., the world's largest energy consumer.
The U.S. currency advanced to its strongest level in more than two years versus the British pound as Hurricane Gustav weakened before making landfall in Louisiana. The Australian dollar fell to the lowest in almost a year versus the greenback after the country's central bank cut interest rates for the first time since 2001 and said economic growth will slow.
``There is optimism about the U.S. economy,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Right now it looks like dollar strength is going to continue.''
While the U.S. Dollar Index fell to a record low in March as the Fed cut interest rates at the fastest pace in two decades, traders now anticipate lower borrowing costs will help America recover from a global economic slowdown before Asia or Europe. Investors bought four times as many dollars in August as the average over the previous 12 months, according to Bank of New York Mellon Corp., a custodian for more than $23 trillion in assets.
Cheaper oil also boosted the greenback, with crude for October delivery having fallen as much as 7.4 percent since the end of last week to $106.86 a barrel, the lowest since April.
The yen rose versus the New Zealand dollar and pound as the prospect of lower interest rates in Europe, the U.K. and Australia prompted traders to pare holdings of higher-yielding assets funded with Japan's currency.
Any gain in the yen may be limited after Japanese Prime Minister Yasuo Fukuda resigned yesterday.
The pound traded at 81.14 pence per euro, near a record low of 81.64 reached earlier today, on speculation the Bank of England will lower interest rates in coming months as the economy slows.

EUR/USD has established session low on $1,4464 nearby to a 2008 year lows on $1,4440 then has raised above a level $1,4500. +

GBP/USD has updated two years lows, having reached a mark $1,7781, then has raised in area $1,7840. Bids $1.7780/70, $1.7750. Offers $1.7850, $1.7900/10, $1.7940.

USD/JPY Offers Y109.00 with stops above, Y109.50/55.

- UK facing unique set of economic circumstances
- UK economy is well placed to face economic problems

The dollar rose to its highest level in almost seven months against the euro on speculation oil prices near a four-month low will support economic growth in the U.S., the world's largest energy consumer.
The U.S. currency advanced to its strongest level in more than two years versus the British pound as Hurricane Gustav weakened before making landfall in Louisiana. The Australian dollar fell to the lowest in almost a year versus the greenback after the country's central bank cut interest rates for the first time since 2001 and said economic growth will slow.
``There is optimism about the U.S. economy,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Right now it looks like dollar strength is going to continue.''
While the U.S. Dollar Index fell to a record low in March as the Fed cut interest rates at the fastest pace in two decades, traders now anticipate lower borrowing costs will help America recover from a global economic slowdown before Asia or Europe. Investors bought four times as many dollars in August as the average over the previous 12 months, according to Bank of New York Mellon Corp., a custodian for more than $23 trillion in assets.
Cheaper oil also boosted the greenback, with crude for October delivery having fallen as much as 7.4 percent since the end of last week to $106.86 a barrel, the lowest since April.
The yen rose versus the New Zealand dollar and pound as the prospect of lower interest rates in Europe, the U.K. and Australia prompted traders to pare holdings of higher-yielding assets funded with Japan's currency.
Any gain in the yen may be limited after Japanese Prime Minister Yasuo Fukuda resigned yesterday.
The pound traded at 81.14 pence per euro, near a record low of 81.64 reached earlier today, on speculation the Bank of England will lower interest rates in coming months as the economy slows.

Resistance 3: Y110.30
Resistance 2: Y110.00
Resistance 1: Y108.70
Current price: Y108.70
Support 1: Y107.50
Support 2: Y106.80
Support 3: Y106.00
Comments: USD/JPY continues to rebounds within the the downward channel from Aug 15, limited by Y107.50/Y109.90 (key support and resistance respectively). Break under Y107.50 will target trend support line from Mar 17 at Y106.80/90. Below losses may extend down to Y106.00. Minor resistance comes at Y108.70 (session and yesterdays highs) with further – on Y109.90/00 channel line. Above there is a chance to test Aug 25 highs at Y110.30.

Resistance 3: Chf1.1320
Resistance 2: Chf1.1180
Resistance 1: Chf1.1120
Current price: Chf1.1117
Support 1: Chf1.0960
Support 2: Chf1.0880
Support 3: Chf1.0820
Comments: USD/CHF continues to increase. Minor resistance comes at Feb highs Chf1.1120, then – on Chf1.1180 (Jan 07 highs). Above the rebound may extend to channel line on Chf1.1340. Below Chf1.0960 dollar’s decline may accelerate and reach last week’s lows around Chf1.0880. Strong support comes at Chf1.0830/40 (23.6% of the Chf1.0016 - Chf1.1090 move).

Resistance 3: $1.8130
Resistance 2: $1.8080
Resistance 1: $1.7950
Current price: $1.7830
Support 1: $1.7800
Support 2: $1.7780
Support 3: $1.7650
Comments: GBP/USD continues to weaken with interim support comes at $1.7800. Break under will widen losses to $1.7780. Stronger level is around channel support line from Jul 31 on $1.7650. Minor resistance is near session high on $1.7950. Above the pound’s correction may extend to $1.8080 and then – Monday’s high on $1.8130.

Resistance 3:$1.4840
Resistance 2: $1.4720
Resistance 1: $1.4600
Current price: $1.4500
Support 1: $1.4480
Support 2: $1.4440
Support 3: $1.4230
Comments: EUR/USD continues to decrease. Resistance is around session high on $1.4600 with a break above will target Monday’s highs on $1.4720. Above the resistance comes at channel line on $1.4840. Interim support is near session low on $1.4480. Below losses may widen to Feb lows on $1.4440. Key support comes at $1.4320 (trend line from Feb 2006).

EUR/USD: $1.4500, $1.4600, $1.4675

USD/JPY: Y107.90, Y108.00, Y108.80, Y109.30/40, Y110.00

GBP/USD: $1.8200, $1.8300

AUS/USD: 0.8510, $0.8550

Kiwi: $0.6900

AUS/Kiwi: NZ$1.2265

EUR
Bids: $1.4470
Offers: $14560/80

JPY
Bids: Y107.80
Offers: Y108.60/70, Y109.00

GBP
Bids: $1.7850/20
Offers: $1.7900/10, $1.7940/50

“The dollar is cheap,” said Roddy MacPherson at Scottish Widows Investment Partnership Ltd. “The U.S. has been quite preemptive in bringing rates down and that bodes better for the U.S. relative to many other countries.”

The dollar rose to its highest level since February against the euro on speculation oil prices near a four-month low will support economic growth in the U.S., the world's largest energy consumer.

The U.S. currency advanced to its strongest level in more than two years versus the British pound as Hurricane Gustav weakened before making landfall in Louisiana.

The U.S. currency was bolstered by speculation the Federal Reserve's seven rate cuts in the past year will help the world's biggest economy recover from a slump. Cheaper oil also boosted the greenback, with crude for October delivery having fallen as much as 4.7% since the end of last week to $110.09 a barrel, the lowest since April 14.

The yen rose on speculation stock market declines will prompt traders to pare holdings of higher-yielding assets funded with Japan's currency. Any gain in the yen may be limited after Japanese Prime Minister Yasuo Fukuda resigned yesterday.

EUR/USD failed to break above $1.4600, spurring correction to $1.4514.

GBP/USD refreshed 2-years lows on $1.7850.

USD/JPY recovered from Y107.80 to Y108.50 before back to Y108.30.

EU PPI report is due to come at 09:00 GMT today and may weight on euro’s move ahead of ECB rate decision.

Later focus will be on ISM manuf. Index at 14:00 GMT with analysts predict index fell to 50.0 in August after 50.2 month earlier.

The benchmark Nikkei 225 ended the day sharply lower, going into a late reverse after early gains. The Nikkei was down 224.71 points, or 1.75%, at 12609.47. The broader-based TOPIX was 18.27 points lower at 1212.37.

Stock market fixing:

Nikkei -238.69 -1.8% 12,834.18
Topix -24.07 -1.9% 1,230.64
FTSE -33.80 -0.60% 5,602.80
CAC -10.47 -0.23% 4,472.13
DAX -0.50 -0.01% 6,421.80

Japan's stocks fell the most in two weeks on concern demand for cars and electronics will fall as spending slows and wages stagnate.
Honda Motor Co., Japan's second-largest carmaker, dropped the most in a month after U.S. consumer spending declined and domestic auto sales fell. Sharp Corp. sank 3.1% after the nation's wages grew at the slowest pace all year. Nippon Oil Corp. tumbled 3.8% as crude prices advanced, raising its production costs.
Bridgestone Corp., the world's largest tiremaker, dropped 2.3%. Toyo Tire & Rubber Co. sank 4.9%, the lowest since March 18. About 60% of the materials used in tires are oil based, according to the Japan Automobile Tire Manufacturers Association.
Citizen Holdings Co. soared 8.7%, the sharpest gain since March 2002 and making it the biggest winner on the MSCI World Index. The watchmaker boosted its full-year profit target 14% citing a gain from the sale of shares.

Stocks in Europe fell, led by raw-materials producers and technology companies, as metals prices dropped and concern mounted that the economic slowdown will curb earnings.
BHP Billiton Ltd., the world's largest mining company, fell for the first time in four days after copper, nickel and tin prices slid.
Commerzbank AG plunged 11% after agreeing to buy Allianz SE's Dresdner Bank for 9.8 billion euros ($14.4 billion) in Europe's biggest financial-services takeover this year.
Daimler, the world's second-largest luxury carmaker, added 2.3%. Air France-KLM Group, Europe's biggest airline, climbed 4.3%.
Michelin, the world's second-largest tiremaker, rallied 6%. Merrill upgraded the stock to ``buy'' from ``neutral,'' citing declining oil prices and an aging fleet of cars needing replacement parts.

US financial markets were closed in observance of Labor Day.

The yen rose to the highest level in five months against the euro and rallied versus the dollar as a decline in stocks prompted traders to pare holdings of higher- yielding assets funded in the Japanese currency.

The pound fell to a record low against the euro after Chancellor of the Exchequer Alistair Darling said the British economy faces the worst slump in 60 years.

The Bank of England will keep interest rates unchanged at 5% on Sept. 4, according to a survey of economists.

The euro fell against the dollar on speculation European Central Bank policy makers will acknowledge this week that the euro-zone economy is weakening, making an rate increase less likely. The ECB will leave its benchmark rate at 4.25% on Sept. 4, according to a survey. Business confidence in Germany, Europe's largest economy, slumped last week, adding to concern the euro-zone will fall into a recession.

EUR/USD slowly eased down from $1.4720 to $1.4580 after the release of weak Germany retail sales figures.

GBP/USD also declined and tested 2-years lows. Ratefellfrom$1.8130 to$1.7980.

USD/JPYfellfromY108.70 toY107.60 beforereboundedtoY108.40.

EU PPI report is due to come at 09:00 GMT today and may weight on euro’s move ahead of ECB rate decision.

Later focus will be on ISM manuf. Index at 14:00 GMT with analysts predict index fell to 50.0 in

Resistance 3: Y110.30
Resistance 2: Y110.00
Resistance 1: Y108.50
Current price: Y108.14
Support 1: Y107.50
Support 2: Y106.80
Support 3: Y106.00
Comments: USD/JPY rebounds within the the downward channel from Aug 15, limited by Y107.50/Y109.90 (key support and resistance respectively). Break under Y107.50 will target trend support line from Mar 17 at Y106.80/90. Below losses may extend down to Y106.00. Minor resistance comes at Y108.50 (session high) with further – on Y109.90/00 channel line. Above there is a chance to test Aug 25 highs at Y110.30.

Resistance 3: Chf1.1320
Resistance 2: Chf1.1180
Resistance 1: Chf1.1080
Current price: Chf1.1067
Support 1: Chf1.0960
Support 2: Chf1.0880
Support 3: Chf1.0820
Comments: USD/CHF set stable after the holiday weekend, holding a bit above the lower bound of the upward channel from Jul 16, limited today by Chf1.0960/Chf1.1340 (key support/resistance respectively). Below Chf1.0960 dollar’s decline may accelerate and reach last week’s lows around Chf1.0880. Strong support comes at Chf1.0830/40 (23.6% of the Chf1.0016 - Chf1.1090 move). Minor resistance comes at Aug 26 highs near Chf1.1080/90, then – on Chf1.1180 (Jan 07 highs). Above the rebound may extend to channel line on Chf1.1340.

Resistance 3: $1.8130
Resistance 2: $1.8080
Resistance 1: $1.7950
Current price: $1.7900
Support 1: $1.7850
Support 2: $1.7780
Support 3: $1.7650
Comments: GBP/USD continues to weaken with interim support comes at session low on $1.7850. Break under will widen losses to $1.7780. Stronger level is around channel support line from Jul 31 on $1.7650. Minor resistance is near session high on $1.7950. Above the pound’s correction may extend to $1.8080 and then – Monday’s high on $1.8130.

Resistance 3:$1.4840
Resistance 2: $1.4720
Resistance 1: $1.4600
Current price: $1.4572
Support 1: $1.4550
Support 2: $1.4440
Support 3: $1.4230
Comments: EUR/USD remains under pressure Tuesday after weaker-then-expected economic data. EU I report is due to come today and may weight on euro’s move ahead of ECB rate decision. Techs say euro still holds within the downward channel from Jul 22, limited today by $1.4240/$1.4840 (key support and resistance respectively). Resistance is around session high on $1.4600 with a break above will target Monday’s highs on $1.4720. Above the resistance comes at channel line on $1.4840. Interim support is near session low on $1.4550. Below losses may widen to Feb lows on $1.4440. Key support comes at $1.4320 (trend line from Feb 2006).

High Low Close
EUR/USD 1.4719 1.4579 1.4585
USD/JPY 108.67 107.59 108.16
GBP/USD 1.8129 1.7982 1.7988
USD/CHF 1.1046 1.0947 1.1025

EUR/JPY 159.60 157.52 157.77
EUR/GBP 0.8136 0.8087 0.8107
GBP/JPY 196.89 194.13 194.60
GBP/CHF 1.9935 1.9760 1.9833

Change % Change Last
Nikkei -238.69 -1.8% 12,834.18
Topix -24.07 -1.9% 1,230.64
FTSE -33.80 -0.60% 5,602.80
CAC -10.47 -0.23% 4,472.13
DAX -0.50 -0.01% 6,421.80

09:00 EU(15) PPI (July) - 0.9%
09:00 EU(15) PPI (July) Y/Y - 8.0%
12:55 USA Redbook (30.08)
14:00 USA ISM Mfg business index (August) 50.2 50.0
14:00 USA Construction spending (July) -0.3% -0.4%