Wednesday March 16, 2005 - 09:13:33 GMT
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FX Daily Technical Strategy
Dollar dips versus euro ahead of U.S. current account
The dollar eased against the euro on Wednesday as traders braced for U.S. current account deficit figures, a day after the currency rose on data showing that the United States drew enough funds to finance its trade deficit in January.
The dollar rose earlier in the session to a one-week high against the euro, after it spiked up in New York trade on the healthily capital flows data.
But the euro edged back up as investors turned cautious ahead of the release of U.S. current account deficit data for the fourth quarter at 13h30 GMT.
The data will likely show a widening in the deficit to $181.90 billion in October-December from $164.71 billion in the previous quarter, according to a Reuters poll.
At 06h48 GMT, the euro bought around $1.3320, off its intraday low of $1.3292 and up from $1.3303 in late U.S. trade.
Despite that rebound, the euro eased slightly against the yen as speculators took profits on the single European currency, traders said.
The euro fetched 138.95 yen, down from 139.08 yen in late U.S. trade. It had hit a 2-½ month high around 140.70 on Monday.
The Japanese currency's firmness against the euro helped support the yen versus the dollar.
The U.S. currency was at 104.30 yen, compared with 104.55 yen in late New York trade.
The dollar had gained more than a cent against the euro in New York trade on the healthily capital flows data a necessary correction after the euro rallied 1.7 percent against the dollar and 2.3 percent versus the yen last week, dealers said.
Data released on Tuesday showed a net capital flow of $91.5 billion into U.S. assets in January, much more than a revised $60.7 billion in the previous month, and exceeding the $58.3 billion trade deficit for January.
Roughly $55 billion is needed each month to fund the ever-expanding current account deficit, which has pummeled the dollar in the past three years.
Analysts were not optimistic about the upcoming current account figures, given that the U.S. trade deficit expanded to record levels in October-December.
Meanwhile, the yen was unfazed by the Bank of Japan's unanimous decision to keep its current ultra-accommodative policy stance. It also kept its current account deposit target at 30-35 trillion yen, as widely expected.
Separately, the BOJ slightly upgraded its assessment of Japan's economy in its March report, saying exports had started to pick up and wages had stopped declining. Currencies were little moved.
DOLLAR/YEN: Yesterday's impulsive decline and violation of the February trend line support increases the odds for a potential short term top. While a near term bounce is likely to develop, we are monitoring yesterday's key breakdown levels, which include the 139.40 trend line and 139.60 overlap levels, which should hold to argue for further weakness.
EURO/DOLLAR: Euro/dollar faces a critical test at the $1.3280/$1.3270 support zone which includes trend line support from the February low, as breaks here would likely extend this week's decline.
@13h30 GMT: U.S. Q4 Current Account, U.S. February Housing Starts
@14h15 GMT: U.S. February Industrial Production
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