Dollar Weakens Against Euro and Yen

Posted by Rob

May 20, 2008

The recent dollar weakness continued today hitting a three week low against the euro. The US dollar traded at $1.5657, from $1.5510, and also declined against the Japanese yen. The dollar declined from 104.33 yen to 103.91.

The decline came about after the IMF said the US housing slow-down still poses “serious risks” to financial markets.

Meanwhile in the euro-zone, market sentiment suggests the ECB will maintain its hawkish stance on interest-rates after positive German wholesale data was released.

According to David Woo at Barclays Capital, “Germany continues to grow reasonably strongly but the euro-zone overall is slowing; and inflationary pressures are increasing, despite the strength of the euro. But in the short run we think the market is likely to focus primarily on German activity data and the ECB on inflation. We continue to see upside for euro/dollar over the next month.” - FT.com

It certainly appears that the pressure facing the dollar is far from over, whilst the euro continues to remain bouyant as the European Central Bank maintains higher interest-rates currently standing at 5 percent.

Technical Chart: EURUSD 1-hour

EURUSD 1-hour (20-05-08)

Looking at the 1-hour technical chart for the EURUSD, we can see the euro reaching a three-week high against the dollar whilst it now sits within a positive channel of support and resistance.

The stochastic shows a hook round from the 80 line signalling the euro being overbought. We may see a retracement towards the 23.6% Fibonacci line. However, looking at the 4-hour and daily chart there are some anomalies in the pattern. Therefore, staying out until there is confirmation of a trend is the solution for successful risk management.

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