Dollar rally faces ‘critical resistance’, but bulls will hold up by


© Reuters.

By Yasin Ebrahim – The Dollar is approaching “critical resistance” that could force some to take profit, but now is not the time to turn bearish as any decline will likely be bought, paving the way for a further rise, according to the experts.

The, which measures the greenback against a trade-weighted basket of six major currencies, rose 0.22% to 93.99.

The dollar is approaching the “critical resistance” of 94.47-94.76, and could be pegged for “some consolidation,” Commerzbank (DE 🙂 said in a note.

While the dollar’s near-term path is likely paved with resistance, the general backdrop for the dollar is favorable as new positive economic data is likely to strengthen the Federal Reserve’s case for tightening monetary policy measures.

Data on Tuesday showed the rise to 61.9 from 61.7, baffling economists’ expectations for a drop to 59.9.

As a sign that inflationary pressures remain elevated, the prices paid component of the ISM non-manufacturing report showed that prices paid fell from 75.4 to 77.5.

“The prices paid remain at a very high level, and they are consistent with a host of other measures that reflect high pricing pressures,” Jefferies (NYSE 🙂 said in a note.

The sustained rate of inflation could force the Fed to raise rates sooner than expected.

“[A]Amid high inflation and rapidly rising energy costs, many market participants are skeptical that the FOMC will be able to keep these rates low for another year, let alone two ” , Stifel said in a note.

In addition to expectations of tightening monetary policy, the dollar was boosted by an increase in demand for safe-haven securities in the wake of the difficulties that are expected to persist in China.

“The headwinds against risk sentiment emanating from the Chinese real estate sector are far from over,” said ING. “In FX, we believe this will continue to provide reasons not to turn the dollar down…”

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