The dollar on Monday rose against the euro and sterling

4/23/2007 02:50 pm: EUR/$..1.3570 $/JPY..118.60 GBP/$..2.0009 $/CHF..1.2093 AUD/$..0.8318 $/CAD..1.1224

Dollar Correction after Recent Sell-Off

The dollar on Monday rose against the euro and sterling after continuous sharp sell-off in the past two weeks. The euro bounced off 1.36 handle, and the sterling fell as low as 1.9977 but was back to above 2 later.

With no key economic data due, today??�s trading is relatively light. The dollar rebound is seen more as a corrective action than a tendency of recovery. The Fed is expected to cut interest rates at least once this year. Overall market sentiment on the dollar is still bearish. According to IMM data, the dollar net short positions rose to 58k compared with 49k the previous week. Net euro longs rose from 104k to 107k, a record high for the second straight week.

US data slated for release tomorrow are forecasted to show further decline in the economy, which may weigh on the dollar. The Conference Board??�s Consumer Confidence index is seen to drop from 107.2 to 105 in April. Existing home sales is estimated to rise at an annual rate of 6.45 million units in April, compared with 6.69 million a month earlier.

Meanwhile, the Bank of Canada is likely to hold interest rates unchanged at 4.25% after its monetary policy meeting tomorrow morning.

EURUSD will face interim resistance at 1.36, followed by 1.3620 and 1.3650. Additional ceilings will emerge at 1.3680, backed by 1.37. Support starts at 1.3550, backed by 1.3530, 1.35 and 1.3470. Subsequent floors are eyed at 1.3450.

GBPUSD encounters interim resistance at 2.0030, backed by 2.0050, and 2.0070. Subsequent ceilings will emerge at 2.0100, followed by 2.0130 and 2.0150. On the downside, support begins at 2.0000, followed by 1.9970 and 1.9950. Additional floors are eyed at 1.9930, backed by 1.9900 and 1.9850.

Yen Climbed on Debt Upgrade

The yen edged higher after Standard & Poor??�s raised its long-term sovereign rating on Japan from AA-minus to AA based on improvements on price stability, structural reform and the outlook for fiscal problems. The currency strengthened from just below 119 to 118.26 versus the dollar.

The market will closely scrutinize the Bank of Japan semi-annual report due this Friday for guidance on economy and inflation outlook. Japan core CPI is forecasted to decline at an annual rate of 0.2% in March. The bank??�s core CPI projections for FY 2007 and 2008 are seen at 0.2% and 0.5% respectively.

According to IMM, net yen shorts continues to build in the latest week to 71k, from 65k the week before. Interest rate futures pricing showed traders see only a 10% chance that the Bank of Japan will raise rates by the end of June. We maintain our bearish outlook on the yen in the medium term.

USDJPY encounters interim resistance at 118.80, backed by 119 and 119.30. Subsequent ceilings will emerge at 119.50, followed by 119.80 and 120. On the downside, support begins at 118.50 and 118.20, followed by 118. Additional floors are eyed at 117.70, backed by 117.50 and 117.30.