Dollar Breakout or Range-bound?

New York (apr 13)  The US dollar had a difficult week. It lost ground against all the major currencies. Falling interest rates, sparked by the FOMC minutes that reassured investors that an early US rate hike is highly unlikely and a drop in the equity markets that wiped out the first quarter gains, appears to have been the main culprit.

Recall that the dollar-bloc had led the move against the dollar last month, but since the new quarter began the euro and yen have participated. Last week, the yen and Swiss franc were the strongest of the majors, while the dollar-bloc seemed to tire.

Given the technical damage inflicted on the dollar and the decline in US interest rates, it is tempting to look for the greenback's losses to accelerate. Yet ,we are more inclined to think that rather than breaking out, the dollar simply moved to the lower end of its ranges.

This means that the greenback may do a bit better in the days ahead as participants will likely be denied fresh incentives. The pullback in US interest rates has likely run its course, US data, including retail sales and industrial production, will point to a recovery from the sluggish start of the year, and important chart levels have been approached.

Dollar Index: From the high on April 4 through the low set on April 10, the Dollar Index fell about 1.6%. Last week, it posted its largest decline since late Q3 13. However, it the bears stalled in front of last month's lows, just below 79.30, which also corresponds to the bottom of the Bollinger Band. A move now above 78.80 would help stabilize the tone.

Euro: After the ECB meeting and the US employment report in the first week in April, the euro had probed the bottom of its Bollinger Band and finished last week near the upper band ($1.3935). Given the psychological importance of the $1.40 area, and what will be a long holiday weekend for many, we suspect the short-term participants will shy away from pushing the euro much higher in the days ahead. Support is likely to be found in the $1.3780-$1.3800 initially.