From the January 01, 2010 issue of Futures Magazine • Subscribe!

U.S. dollar: Where to now?

After getting hammered for most of the year since peaking in March at the bottom of the equity move, the dollar rebounded in early December on the better than expected November employment report. But the outlook for the dollar in early 2010 is muddled.

“The picture’s become a little more confused,” for the dollar, says Andrew Wilkinson, senior market analyst at Interactive Brokers. “The prospects for the euro have suddenly dimmed because investors went too far thinking that the ECB might raise interest rates. There were a few too many overly optimistic expectations built into the dollar around 1.51 [against the euro].”

Some analysts see the dollar going a bit higher. “If it can hold above a 50-day moving average for at least five trading days, the chances of the dollar index going up to 77.50 are pretty good by mid January,” says Ian Naismith, co-portfolio manager of the mutual fund The Currencies Strategies Fund.

Wilkinson says equity markets will continue to rise into 2010, which he says should put a rally in the euro on firmer footing in the first quarter. He expects weakness in the dollar to 1.54 against the euro in the first quarter.

Brian Dolan, chief currency strategist for Forex.com, expects a differentiated outlook for the dollar, with a higher dollar against the yen and a weaker dollar against the euro and the pound, and more pronounced dollar weakness against the Australian dollar, the New Zealand dollar and the Canadian dollar. Specifically, for mid January, he sees the dollar at 9200-9250 against the yen, 1.47-1.51 against the euro, 9500-9800 against the Australian dollar, and 1.02-1.05 against the Canadian dollar.

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