Dollar Reversing Gains, Wednesday, August 29, 2007 1:04:35 AM

After rallying for the past three days, the US dollar has recently reached multi-day highs against the euro and the pound, but is now at an 8-day low versus the Japanese yen. The Relative Strength Index on the hourly charts shows that the greenback has been overbought against the euro and the pound. The greenback is oversold against the yen, which suggests that the currency is ripe for a rebound.

Fundamentally, the unwinding of carry trades resulted in the strengthening of the US currency against risk-friendly currencies such as the euro and the sterling recently. The Australian and New Zealand dollars are the other majors, which declined sharply versus the US currency on declining investor confidence.

The dollar was down against the euro and the pound during early deals yesterday, while holding steady against the yen. However, the greenback gained ground in New York deals amid a slightly softer August U.S. consumer confidence data from the Conference Board.

The report showed that the consumer confidence index fell to 105.0 in August from a downwardly revised 111.9 in July. Economists had expected the index to drop to 104.5 compared to the 112.6 originally reported for the previous month.

Lynn Franco, Director of the Conference Board Consumer Research Center said, `A softening in business conditions and labor market conditions has curbed consumers` confidence this month.” Franco also said the recent financial market volatility and continued sub-prime woes may also have played a role in the drop in consumer confidence.

Later, the Federal Open Market Committee released the minutes of its August 7 meeting, which reiterated the committee`s concern over upside risks on inflation. The minutes did not offer any clue on the time frame for a widely anticipated interest rate reduction.

A less optimistic market continued the unwinding of carry trade positions all through late trading on Tuesday, which has lifted the dollar to its near-term resistance levels against the European common currency and the British pound. On the other hand, the buck is now at a near-term support level versus its Japanese counterpart.

Against the euro, the dollar rallied on Tuesday, and is up from its previous day`s close of 1.3645. The pair hit a high of 1.3561 by about 9:20 pm ET. Of late, the pair has dropped a few pips and is now trading near the 1.3592 level. On the upside, the 1.3616 level is seen as a near-term target for the dollar. The RSI on the hourly chart is at the 40.3 level.

The greenback also strengthened against the sterling on Tuesday. As of 9:20 pm ET, the pair was worth 1.9960, up from its Monday`s close of 2.0119. Of late, the greenback has shed a few pips and is being quoted around the 2.0021 level. If the pair weakens further, 2.0050 is likely be a near term level of support for the buck. The RSI on the hourly chart is at 43.98.

On the other hand, against the Japanese yen, the greenback declined on Tuesday and has hit a new multi-day low of 113.85 in early Asian deals on Wednesday. Thereafter, the pair moved sideways, but has started to drift higher lately. As of now, the pair is worth 114.38 with a near-term upside target likely around 115.35. The RSI on the dollar-yen hourly chart has moved up from 19.5 level and is now near 40.0.

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