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Usd Testing 115.5 Support Level Against Jpy

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Possible backlash by the markets after rumour that IR tightening has finished by the fed?

Edited by RobertPaulson

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Should be an interesting day tomorrow if Bernake is even slightly reticient about further tightening after the expected .25% increase, with the dollar already showing losses across the board today (partly due to uncertainty surrounding further rate hikes in the near term and also Japanese financial year end induced selling). The dollar rebounded from 115.47 in the build up to his "bullish" (some may say leaked) speach at the Economic Club the other week but we may see sharp losses if bernake is not so forceful tomorrow.

Currencies: Outlook for dollar dims in light of Fed meeting

By Daniel Kruger and Kabir Chibber Bloomberg News

MONDAY, MARCH 27, 2006

NEW YORK The dollar was expected to fall this week amid speculation by traders that the new Federal Reserve chairman, Ben Bernanke, will signal that the central bank is almost ready to stop raising interest rates, a Bloomberg survey has shown.

Forty-three percent of the 51 traders, strategists and investors worldwide surveyed Friday advised selling the dollar against the euro this week. Forty-one percent said the dollar would weaken against the yen, as well.

Bernanke, who succeeded Alan Greenspan in February, will preside over his first Federal Open Market Committee meeting starting on Monday. While 88 of the 90 economists surveyed by Bloomberg expect a quarter percentage point increase to 4.75 percent on Tuesday, traders are likely to sell the dollar unless the central bank voices concern about faster economic growth. Reports last week showed that new-homes sales had their biggest drop in nine years and that producer prices fell by the most in almost three years.

"Buy everything against the dollar," Greg Gibbs, a strategist at ABN AMRO in Sydney, said during an interview. "I expect the FOMC statement to say further rate decisions will be data dependent, which will make the market less certain of rate hikes."

The dollar rallied against the euro and yen last week, recovering from its steepest loss in two months.

Traders increased speculation last week that the Fed would lift rates to 5 percent by midyear after Bernanke said that the economic outlook was "positive" in a speech at the Economic Club of New York.

Interest rate futures indicate that the odds of a quarter-point increase at the Fed's May 10 meeting rose to 79 percent Friday, from 73 percent a week earlier.

"If the Fed indicates another hike is not set in stone, we'd probably see some dollar weakness," said Steven Englander, chief currency strategist for the Americas at Barclays Capital.

Signs of slowing economic growth may put Fed action on hold. New- home sales tumbled 10.5 percent in February, the Commerce Department said last week. The Labor Department reported the week before that consumer prices rose 0.1 percent in February after accelerating 0.7 percent a month earlier.

Aiding the dollar, however, Treasury securities have extended their yield advantage above European and Japanese government debt.

"U.S. assets remain attractive," David Kohl, the deputy chief economist in Frankfurt at Julius Baer Holding, said.

The differences may shrink in the second half should the European Central Bank raise rates and the Bank of Japan end its policy of keeping borrowing costs near zero percent.

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well, its gapped down again, but bounced at 115.47... Mood seems much more bearish now, so hopefully the countertrend rally is spent

FOREX-Dollar hits 3-mth low on yen as G7 presses China

Sunday 23 April 2006, 6:40pm EST

WELLINGTON, April 24 (Reuters) - The dollar slid about 1 percent to three month lows against the yen in early trade on Monday after Group of Seven countries singled out China in their call for more flexibility in exchange rates.

The G7 finance ministers and central bank governors, in a communique issued after a meeting in Washington, called for a further rise in China's yuan to help cut its growing trade surpluses with the rest of the world.

In morning trade, one dollar bought 115.68/71 yen <JPY=>, having been quoted as low as 115.35 yen <JPY=>. It fetched around 116.50 yen in late U.S. trade on Friday.

Analysts said the renewed pressure on China's currency regime hurt the dollar most of all given the United States ran a far larger trade deficit with China than any other country.

"The meeting highlighted a weakening path for the dollar given some pretty explicit statements from the G7," said Cameron Bagrie, head of market research at ANZ Bank.

He noted that, not only was China singled out, but the G7 seemed ready to transfer its power to a wider surveillance group in recognition that exchange rate policies are no longer a matter of concern for advanced industrial countries alone.

"The implicit message is that the U.S. dollar needs to go down, but the group of G7 does not want their currencies to endure the brunt of the appreciation. Hence, the dollar must go down against non-G7 nations," concluded Bagrie.

The euro firmed to $1.2370/73 <EUR=>, compared with around $1.2345 on Friday. It had gained late last week after Sweden's central bank said it had increased the share of euros in its foreign exchange reserves to 50 percent and cut the dollar's share to 20 percent from 37 percent.

Dollar sentiment was further dented after Russian Finance Minister Alexei Kudrin questioned the dollar's status as the wold's main reserve currency. The comment fed worries that other central banks might diversify their holdings away from dollars.

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