EURUSD has collapsed further this morning on a stronger dollar, trading down to a low of 1.4908, after steadily ratcheting lower in the US session from a high of 1.5130, down to 1.4997. Asia has been the driver of dollar movements this past week, with fresh real money flows propelling a stronger dollar. This morning's price action however has been more a function of illiquid trading conditions and as such we decided to take the opportunity to offload our EUR put. We sold the EUR put (1.51 strike, Sep 16 expiry) for 1.98% (spot reference at closing 1.4950) registering a 1.35% profit on our initial premium of 0.63%.

In other markets, the S&P 500 jumped 2.4%, while oil prices fell almost $4 to $116.15/bbl, and 2-years up 6bp to 2.50%. The dollar has been strengthening due to a deterioration in economic data outside of the US coupled with low oil prices. The longer oil stays stable or lower, the more inflation-targeting central banks such as the ECB and the RBA are able to focus on downside risks to growth. Conversely if oil were to start creeping higher again in the absence of clear fundamentals, it would raise the risk of a partial reversal of recent moves.

In the week ahead, retail sales for July due on Thursday are expected to rise slightly. Friday's Uni of Michigan consumer confidence index for August is likely to rise of historically low levels. CPI for July are due on Thursday and are likely to rise by a heft 5% y/y, although the core measure should only increase by 2.4%, down from 2.5% in June. While maintaining 3m and 12m EURUSD forecasts of 1.53 and 1.40, respectively, we believe that any bounce in the pair will be muted. In line with this view, we will revise our dollar forecasts in FX Perspectives due tomorrow.

It will be a busy week in terms of data releases in the Eurozone. After the ECB kept rates on hold and ECB President Trichet highlighted that downside risks to growth, we expect growth data to keep impacting investor sentiment. A further confirmation of last month's trend of deteriorating growth conditions will therefore likely keep the single currency under pressure. We see the EUR a sell on rallies. Inflation figures are unlikely to surprise to the upside, as both weak growth in the Eurozone, and lower oil prices are supporting the case of peaking inflation. The first estimate on Q2'08 GDP will be released on Wednesday, and our economists expect a considerably weaker reading than the market. Industrial production, due on Wednesday, will be watched in order to assess the level of activity - our economists expect a disappointing outcome. Altogether, growth data is therefore expected to confirm the view that further tightening in rates by the ECB is unlikely. The final CPI reading for July, due on Thursday, is expected to be confirmed at 4.1% y/y. Under such conditions we see only little scope for any sustainable EUR recovery in the week ahead.

This week's Australian data will provide a snapshot of current economic conditions. The NAB business survey and Westpac's consumer confidence survey will be crucial, as the outlook on the Australian economy has suffered of late. The RBA has already signalled cuts in the pipeline, and the consumer inflation expectations survey may point to signs of peaking inflation. The RBA's quarterly economic statement due later this morning will likely detail the rationale for an upcoming rate cut, though inflation concerns lurk as we expect weekly wages to continue picking up. In New Zealand, retail sales for June will be the key release and we are looking for a slight m/m rebound of 0.5%. Both commodity currencies have sold off heavily as their rate expectations begin to unwind, but we suspect AUD has been oversold as risks remain for a rebound in commodity and energy prices.

The unemployment rate for July fell to 6.1% from 6.2% and net change in employment came in well below expectations at -55k. The majority of job losses were part time, with about -7k of full-time losses. The CAD immediately weakened to a high of 1.0685 on the back of the release. With oil prices coming off further recently and economic data continuing to disappoint any BoC shift in focus towards growth concern would further undermine the CAD. In the week ahead, manufacturing shipments are the main focus - we expect a decline to 1.0% from 2.7% previously. Housing starts data and international merchandise trade figures are likely to remain relatively flat.

The Swiss unemployment report for July was released on Friday and the jobless rate remained stable at 2.5% (on a seasonally-adjusted basis). The SNB will be on alert for wage pressures as the labour market remains the tightest in nearly 7 years. The recent declines in the EUR will ease worries over pass through inflation and the SNB will see no reason to tighten rates further in light of the ECB's decision. The franc has also received a boost on the crosses due to renewed worries over the banking sector, but we expect gains to stay limited as risk appetite looks to consolidate on its recent gains and the SNB intends to stay put.