The dollar advanced against the pound and the euro, rising to session highs by afternoon trading amid further losses in the US equity bourses. The Dow Jones, Nasdaq and S&P 500 were all lower by more than 1.2% as questions over the prospects for a global economic recovery continue to linger. Crude oil extended its losses and remaining mired beneath the $70 per barrel level, tumbling to $62.38 per barrel.

Safe haven flows continued to dictate direction in the foreign exchange market with the Australian dollar, euro and sterling tracking equities lower. Risk aversion will be the key driver of forex flows over the coming weeks as traders digest incoming economic reports to gauge the prospects for an economic rebound.

Euro Relinquishes Gains

The euro gave back earlier gains against the dollar and yen as US equities slid lower by mid-session. The euro was initially higher on the day following stronger than expected Eurozone economic data, which had bolstered the single currency past the 1.40-level against the dollar and near the 134-region versus the yen.

Economic data from Germany revealed a sharp improvement in factory orders for May, which surged at its strongest pace in nearly two years and far outpaced consensus estimates. The May factory orders reading spiked to 4.4%, beating forecasts for an improvement to 0.5% from a flat reading in April.

Germany's Finance Minister Steinbrueck issued a cautionary statement, saying the enormous amounts of liquidity in the financial markets must be closely monitored, although inflation currently isn't problematic. He said, the question of how to get the toothpaste back into the tube or genie back into the bottle must be dealt with so as not to provide fodder for the next crisis.

EURUSD dipped back below the 1.40-level, drifting to 1.3960. Support is seen at 1.3930, followed by 1.39 and 1.3860. Additional floors will emerge at 1.3835, backed by 1.38 and 1.3750. On the upside, resistance will emerge 1.40, followed by 1.4050 and 1.4075. Subsequent ceilings are eyed at 1.41, backed by 1.4140 and 1.4180.