FOREX-Euro flat but shaky after ECB ambush

* Euro on verge of breaking out of range in past 2 months

* Doubts on Fed policy could underpin euro

* Yen at 1-month low as risk appetite boosted by ECB

* Commodity currencies gain

By Patrick Graham

LONDON, Oct (HKSE: 3366-OL.HK - news) 23 (Reuters) - The euro hovered just above two-month lows on Friday, still struggling after a series of signals on likely further action by the European Central Bank drove the single currency's biggest one-day fall since January a day earlier.

Strategists and traders were debating whether the sell-off had further to run: when the ECB was dripfeeding its move towards quantitative easing into financial markets a year ago, the euro tended to fall in two-day bouts.

Banks including Goldman Sachs (NYSE: GS-PB - news) and the currency market's second biggest global player, Deutsche Bank (Other OTC: DBAGF - news) , who have been calling all year for the euro to fall below parity with the dollar, were all back on the offensive overnight.

Goldman said the potential for further falls in the euro was "still substantial", predicting a swift return to 12-year lows around $1.05 hit in March if the ECB delivers more easing.

"The ECB was as dovish as the most dovish expectations," said Richard Benson, co-head of portfolio investment at Millennium Global, which manages currency for a range of major investors.

"Putting a cut in the depo rate on the table is very negative for the currency, that was the powerful thing. If we fall below $1.1050 today then we will see structural selling (by asset managers) next week."

The euro fell as low as $1.1072 at one point in Asian trade before recovering to It (Other OTC: ITGL - news) last traded at $1.1104.

Still, the consensus over the stronger dollar that helped drive a step change in the euro's broader value has weakened since March. Many economists are also unconvinced that an increase or extension in time of the bank's bond-buying will actually have much effect on the currency.

Until Thursday's moves, the first seven months of the easing programme, under which the ECB floods the system with newly-printed euros, had left the single currency 4.5 percent higher against the dollar and up 3.5 percent on a trade-weighted basis.

Germany's Commerzbank (Xetra: CBK100 - news) was among those arguing that any dollar gains were likely further to encourage the U.S (Other OTC: UBGXF - news) . Federal Reserve to hold off with any rise in its interest rates.

"A further USD appreciation should make the FOMC even more reluctant to hike," the bank's head of European FX strategy Ulrich Leuchtmann said in a morning note. "However, market participants are not really expecting significant US rate hikes for the foreseeable future anymore."

The fallout for other currencies has been mixed. The Swiss franc fell sharply against the dollar due to expectations the Swiss National Bank would have to cut its own interest rates further into negative territory if the ECB cuts.

The Swedish crown also saw relatively little benefit against the euro, reflecting an inflation and policy picture in Sweden which has broadly tracked that in the euro zone.

The Australian and New Zealand dollar were both sharply higher against the euro and dollar, reflecting a bullish atmosphere on stock markets globally. The Aussie rose almost 1 percent to $0.7278. (Editing by Andrew Heavens)