Article » Can Dollar Hold Ground?

Can Dollar Hold Ground?

Mar 31 2008, 09:53

Dollar selling still continue, and this week we're seeing more and more of it, but the pair had a hard time clearing the 1.5850 resistance level on the way to challenging the 1.5900 all time highs against the euro.
Perhaps the bears are starting to run out of steam. Certainly the economic data gave them little to chew on this week.
Overall the results were a bit mixed as housing data and personal income showed some mild improvement but Durable goods once again missed to the downside. At best one could say that the US fundamentals have not become dramatically worse and that was enough to keep dollar bears at bay.

The pair remains at standstill as traders look for new themes to develop. Last week we noticed that "With EURUSD having run out of stream at 1.5900 early last week, near term momentum has shifted to dollar bulls. They will however, need further negative surprises out of the Eurozone in order push the pair lower. Otherwise, assuming there are no additional exogenous shocks, the currency market may simply meander aimlessly for the rest of the week in very narrow trading range."

The range for the time being appears to be contained within 1.5600-1.5850 zone but if it gets out of 1.6000 limits it can go even higher than that. However, next week the veneer of calm may be shattered by the event risk to come. The US calendar carries important releases nearly every day of the week with both ISM Manufacturing and Services possibly foreshadowing the state of the US labor market to be revealed in Friday’s NFPs. If data confirms the doomsayers worst predictions showing continuing contraction in US labor demand, the dollar may not be able to hold its ground and 1.6000 could give way. On the other hand if the numbers do not reveal a huge decline of –100k or more, the greenback may inch away from precipice and commence a much needed relief rally.