Inflation Data helps Dollar post gains

The dollar rose against the euro yesterday as surprisingly robust U.S. inflation and manufacturing data suggested the Federal Reserve may be less aggressive in cutting interest rates.

The dollar rose against the euro yesterday as surprisingly robust U.S. inflation and manufacturing data suggested the Federal Reserve may be less aggressive in cutting interest rates.

The US Labor Department reported wholesale prices rose 1.1% in March against the expectations for a 0.4 % increase while the core producer price index which excludes volatile food and energy rose 0.2%.

Better than expected Retail Sales data also supported the dollar. Data from the US Commerce Department showed retail sales managed to rise 0.2% in March compared with economists' consensus expectation for a 0.1% decline.

Sentiments in the dollar remained dampened on sustained fears regarding the US Economy after data showed US consumer confidence sunk to its lowest level in 26 years in early April according to a report from University of Michigan/Reuters. The US consumer sentiment index fell to 63.2 in early April from 69.5 in March.

Most of the data are supporting the view of weak economy in US. The US Commerce Department revealed the nation's trade deficit expanded unexpectedly by 5.7% to $62.3 billion in February.

In job sector Initial jobless claims in the US fell 53 000 to 357 000 in the week ended April 5 as reported by the Labor Department. But the four week average of initial claims rose by 2 500 to 378 250.

Also continuing jobless claims rose 3 000 to 2.94 million the highest since July 2004 for the week ending March 29. The four week moving average of continuing jobless claims increased 36 500 to 2.9 million.

Minutes from the Federal Open Market Committee meeting held in March gave a downbeat assessment of the US economy leaving the possibility of further cuts in US interest rates intact. The minutes also showed that many board members believed a recession in the first half of 2008 was likely amid declining economic growth and financial market stress.

Federal Reserve Chairman Ben Bernanke in testimony to Congress had said that the outlook for US economic growth had worsened since January and the possibility of a recession could not be ruled out.

Medium Term OutlookExpecting a short term recovery in dollar if it sustains below 1.5725 Supports are 1.5909 1.6148 1.6420. Resistances are 1.555 1.5380 1.5220 and 1.5110. But if it trades above 1.5910 more weakness can be expected. In spot dollar closed at 1.5791 (1.5843) against the euro after trading in the range 1.5875 1.5749.Last day DEUR June traded in the range 157.18 158.23 and closed at 157.33.

Spot Dollar vs Euro

TECHNICAL OUTLOOK (Intra day)

DEUR (June) Bullish above 157.73 bearish below 157.27

DATA TO WATCH

2008 April 16

Dubai time = GMT +4 hours