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Dollar Rally Faces ‘Critical Resistance,’ But Bulls Will Hold The Line By


© Reuters.

By Yasin Ebrahim – The dollar is approaching ‘critical resistance’ that may force some to take profit, but this isn’t the time to turn bearish as any dips will likely be bought paving the way for further upside, experts say.

The greenback was compared to six trade-weighted currencies in the. It rose 0.2% to 93.99.

The dollar is approaching “critical resistance” of 94.47 to 94.76, and could be set for “some consolidation,” Commerzbank (DE:) said in a note.

While the short-term path for dollar is likely paved with resistance, the overarching backdrop for the dollar is favorable as further positive economic data will likely strengthen the Federal Reserve’s case to tighten its monetary policy measures.

Data on Tuesday showed the rose to 61.9 from 61.7, confounding economists’ expectations for a decline to 59.9.

The ISM Non-Manufacturing Report showed that prices paid increased to 77.5, from 75.4.

“Prices paid remains at a very high level, and it is consistent with a host of other metrics that reflect elevated prices pressures,” Jefferies (NYSE:) said in a note.

The Fed could raise interest rates sooner than expected due to the steady rise in inflation.

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

The dollar is being supported by increased safe-haven spending in light of China’s continuing difficulties.

“The headwinds to risk sentiment stemming from China’s property sector are far from over,” ING said. “In FX, we think this will continue to provide reasons not to turn any bearish on the dollar…”

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