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FOREX-Dollar firms after profit-taking, more gains seen

Published: March 16, 2012 | 10:01 am
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* Dollar stuck ahead of resistance levels vs yen, euro
* Dollar rally seen on course as U.S. outlook improves
* U.S. inflation, industrial production data awaited

LONDON – The dollar rose on Friday and was on course to push higher, supported by a brighter U.S. economic outlook, though it stayed below a two-month high against a basket of currencies after traders took profit on recent gains.

Analysts said more evidence of the U.S. economy gaining steam and a further rise in U.S. yields may be required before the dollar extends its rise beyond its recent highs.

The greenback was also stuck below chart resistance levels after failing to break above 85 Japanese yen, while the euro stayed above support at $1.30, where traders reported an options barrier.

“Many still expect euro/dollar to go lower on stronger U.S. data, but few are ready to put on new short positions just yet,” said Niels Christensen, currency strategist at Nordea in Copenhagen.

“If we continue to get better U.S. data, with payrolls increasing by more than 200,000, then two-year yields will continue to rise and support the dollar.”

Friday will see the release of U.S. inflation and industrial output figures and a University of Michigan sentiment survey and strong readings could help push it higher.

The euro fell 0.2 percent to $1.3060 but stayed above a one-month low of $1.3004 hit on Thursday. Below $1.30, further chart support lies at the Feb. 16 trough of $1.2973.

The dollar rose 0.3 percent to 83.76 yen, not far from an 11-month peak of 84.19 hit on Thursday as the yen suffered in the wake of surprise monetary easing in Japan.

“People are taking profits after huge gains this week made as the last group of hedge funds and other investors went dollar long,” said Minori Uchida, a senior analyst at Bank of Tokyo Mitsubishi UFJ in Tokyo.

“It’s just a tiny correction in the uptrend which is likely to carry on to at least last year’s high (around 85.53 yen), maybe even above 86 yen.”

The dollar index, which measures its value against a basket of major currencies, stood at 80.307, up 0.3 percent on the day but below a two-month high of 80.738 hit on Thursday.

Growing evidence that the recovery in the world’s biggest economy is becoming more self-sustaining has fuelled gains in the dollar as market players have scaled back expectations of more stimulus from the Federal Reserve.

U.S. data on Thursday showed claims for new jobless benefits fell to a 4-year low last week as manufacturing activity in the Northeast picked up.

Riskier commodity-linked currencies also came off their recent lows against the dollar, with the Australian dollar at $1.0509, comfortably above a one-month low of $1.0422 plumbed on Thursday.

Support stood at the 200-day moving average at $1.0404, with recent highs just above $1.0550 likely to cap gains for now.

reuters

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