Dollar Softer as Recent Ranges Hold

NEW YORK ( BBH FX Strategy) -- The dollar is broadly weaker as Tuesday's correction appears to have run its course and most currencies held the bottom of their recent ranges.

The euro is nearing recent highs around 1.33, but if cleared that would open up a test of the late February high around 1.35. Sterling is underperforming after the Bank of England minutes showed that two of nine voters wanted to expand QE.

The dollar is modestly firmer against the yen with resistance expected to come in near 84.0, which needs to be cleared before testing the next objective around 85.50, the high from April 2011. Global shares are mixed, with Asian stocks broadly lower as concerns over China's growth continue to resonate.

The MSCI Asia Pacific Index is down -0.7%. European shares are little changed, with the EuroStoxx 600 led by the 0.5% gain in tech shares. Banking shares are flat. The S&P 500 futures are modestly higher, up 0.2%.

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Oil prices are rebounding after the biggest drop in three months, but Wednesday's price action should be sensitive to the Department of Energy's inventory report at 10:30 EST.

China cut reserve ratios for 379 branches of Agricultural Bank of China to boost rural credit.

Italy is intent on pushing ahead with labor reform. With news emerging that the largest union, CGIL, will oppose Prime Minister Mario Monti's proposals, reports suggest the government may try to ram reforms through by decree. This is risky. By not securing union support, the risk of strikes rises. By not securing parliamentary support, Monti risks a revolt by the more leftist parties that find this combination unpalatable.

As we noted yesterday, labor reforms are key for Italy to regain competitiveness and so any delay in implementation would be quite negative. Italy has been the darling of the markets this year, with yields down sharply, but markets may have to reassess the risks in Italy to reflect the new strains.

CGIL will hold a press conference at 10 AM EST to discuss its opposition to the reforms, while the government will meet with unions and employers Thursday for further talks.

Dutch bonds are under pressure. The Dutch benchmark yield is up 5 basis points Wednesday, the largest rise among core bonds and matches the rise in Portuguese benchmark yield. As Portugal does not need to issue bonds this year, the Dutch yield is more telling. Tuesday's report by the Dutch analytic bureau was even less sanguine about reaching the deficit targets than previously. It revised its deficit estimate to -4.6% of GDP for this year and next; a slight tweak from its previous -4.5% projection, but illustrates its confidence of the miss.

The Turkish lira is outperforming today following hawkish comments from central bank governor Basci.TRY is down 3% this month, only outperforming BRL in the emerging markets space.

We prefer to suspend judgment until the central bank meets March 27, but we recognize the potential for the rebound in TRY to continue. The 100-day moving average near 1.82 could be a near-term top for USD/TRY. On the downside, a break below the 1.80 level will open the door for a test of the 50- and 200-day moving averages, both just below the 1.7850 level.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.