Euro/US Dollar Currency Analysis

The dollar was unable to make any significant attack on Euro support below the 1.4350 level on Monday and weakened to lows beyond 1.44 before consolidating around 1.4385 in the US session.

Trading conditions were inevitably very light with much of Europe still on holiday following the Christmas break. There were some reports of dollar repatriation ahead of the year-end which provided a degree of support for the currency.

The latest data continued to record a decline in speculative short dollar positions.

This does suggest some improvement in confidence surrounding the dollar, but the adjustment that has already taken place will lessen the potential for further gains without a further improvement in confidence surrounding the US economy.

In this context, the yield structure will remain important for the dollar’s trend.

There will be expectations of rising consumer confidence in Tuesday’s monthly Conference Board report which would tend to provide some support for the dollar.

It will still be difficult for the dollar to make strong gains unless there is a further deterioration in sentiment surrounding the Euro-zone economy, especially as the Fed will still be very cautious over removing monetary stimulus.