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Dollar Slumps After Greenback Fails to Breach Key Levels
DowJones.com, April 8, 2005
The dollar fell back sharply from day-earlier levels Friday, wiping out much of its advance from earlier in the week, particularly against the euro.
The move lower came after the U.S. currency repeatedly tried and failed during overnight and New York morning trading to push through the $1.2810 threshold versus the euro. The move took the dollar from the top to the bottom of the $ 1.28 to $1.2940 range in which it has traded this week.
Late afternoon, the euro was at $1.2927 from a session low of $1.2810 and $ 1.2855 late Thursday. The dollar fell to 108.29 yen from 108.60 yen, while the pound rose to $1.8848 from $1.8697.
Stephen Reilly, currency trader at Gain Capital in Warren, N.J., said euro buying from a central bank had prevented the dollar pushing the euro below $ 1.28. Throughout the week, there has been talk in the markets that Russia's central bank was purchasing the single currency when the euro dipped to around $ 1.28.
When traders finally gave up on attempting to move the dollar higher, they started to reduce their dollar-long positions, and that meant selling the U.S. currency and buying euros.
Reilly said the failure of the dollar to rise above 109 yen added momentum to the move. With the expiry of a number of options barriers at 109 yen Thursday, there was an expectation the dollar would extend its recent gains versus the Japanese currency. When that didn't happen, it encouraged investors to conclude the dollar's rally may have come to an end and they bought yens.
The dollar edged even lower after the late-afternoon release of the Commodities Futures Trading Commission's IMM data, which showed speculative traders had shed more short-dollar positions. That leaves the dollar a bit more vulnerable to a reverse from its gains of recent weeks.
Bank of America analysts said the aggregate net short-dollar positions versus six major currencies was around $500 million compared with $3.5 billion a week ago.
The dollar's fall also came as U.S. equity markets dropped back and despite a rise in the 10-year Treasury note yield above 4.50%.
Michael Jansen, senior currency strategist at National Australia Bank, thought the dollar's slide Friday was position squaring "ahead of the weekend."
Next week, the U.S. reports its February trade deficit, a number that could focus the market back on the U.S.' huge current-account deficit and the threat this poses to the dollar. The trade deficit is expected to have widened a tad to $58.5 billion from $58.3 billion in January, according to a survey of economists by Dow Jones Newswires.
In addition, Treasury International Capital System investor inflows data for February are due Friday.
(Robert Flint contributed to this article)
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