Saturday, November 11, 2006

Dollar Stays under Pressure on Reserves Diversification Concern

The dollar remains weak against major rivals Friday on concerns over central bank reserve diversification. People's Bank of China announced yesterday that it planned to diversify its $1 trillion foreign exchange reserves, putting the dollar under pressure. The dollar weakened to a 2 ½ month low at 1.2899 against the euro and a 18-month low at 1.9176 versus the sterling.

Chinese central bank governor Zhou Xiaochuan attended a European Central Bank conference today with several other central bankers, including Federal Reserve Chairman Ben Bernanke. Zhou said China was considering investing its reserves in currencies, investment instruments, including emerging markets. But he said China would stick to the existing diversification policy. Central banks over the world seem to diversify their foreign exchange reserves away from the dollar. This provides the market to sell the dollar amid the light economic calendar.

EURUSD will face interim resistance at 1.2865, followed by 1.29 and 1.2930. Additional ceilings will emerge at 1.2950, backed by 1.2970. Support starts at 1.2830, backed by 1.28, 1.2770 and 1.2750. Subsequent floors are eyed at 1.27.


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