The U.S. dollar started 2005 on a strong note, which encouraged traders to take profits on some of their short positions. By Dec. 31 the dollar was severely oversold from both short- and longterm perspectives, although some economists might disagree with this for fundamental reasons. Consequently, some traders ventured to buy the dollar currencies. Where do we go from here?
The dollar should attempt to recover for the rest of the first quarter of 2005 before the next bout of selling will occur. Central bankers made clear how to see the world through the prism of foreign exchange: The European currencies have already experienced the necessary adjustments, so it is now the Asian currencies’ turn to strengthen further and help alleviate the U.S. trade imbalance.
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