By Riva Froymovich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The euro and dollar both moved to about three-week highs against the safe haven yen after the release of encouraging U.S. data. U.S. new-home sales soared in June, making the third increase in a row and supplying fresh evidence the housing market is beginning to recover from its long crisis. It appears new-home sales reached a bottom in January, at a level of 329,000, and that the market is beginning to recover slowly. The level of 384,000 in June was the highest since 390,000 last November. The dollar gained to its highest level July 7, Y95.39, and the euro gained to its highest level since July 2, Y136.11 in a knee-jerk reaction as U.S. stocks also advanced. The euro spiked immediately versus the lower-yielding dollar as well, as high as $1.4271, still off the eight-week high struck earlier at $1.4299. However, it has since reversed those gains to levels it was trading at before the report. Monday morning in New York, the euro was at $1.4259 from $1.4212 late Friday, and the dollar was at Y95.35 from Y94.69, according to EBS. The euro was at Y135.96 from Y134.53. The U.K. pound was at $1.6498 from $1.6429, and the dollar was at CHF1.0685 from CHF1.0711. Still ahead, the Chicago Federal Reserve Midwest Manufacturing Index will be released at noon. But the key events this week for the dollar, according to strategists, are the second-quarter advance release of U.S. gross domestic product Friday and a record issuance of $115 billion in U.S. government debt that will test the market's appetite for dollars. Speculative sentiment has moved more strongly against flights to safety and the associated flows to the dollar and yen. The aggregate net short speculative dollar position in the Commodity Futures Trading Commission's Commitments of Traders report for the week ended July 24 hit its highest level in more than a year. Bets on the euro, in particular, showed what several analysts called a massive increase. "This increase in speculative sentiment bodes well for a general break of the current trading range against the dollar," said currency strategist Sacha Tihanyi. To boot, UBS client flows indicate that asset managers were aggressors last week, "at last lured into rising equity markets," said strategist Gareth Berry. "Clients net sold the greenback by 3.5% of total volume traded, in respectable size," said Berry. "The yen too came under selling pressure with hedge funds the principal driving force. By the end of the week, clients had net sold the yen by 4.5% of total volume traded." -By Riva Froymovich, Dow Jones Newswires; 212-416-2217; riva.froymovich@dowjones.com (Jeff Bater in Washington contributed to this report.)

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