Dollar trapped in ranges but seen vulnerable

The dollar traded in tight ranges against the euro and the yen on Tuesday ahead of the year-end holidays, but market players said it was only a matter of time before the currency resumed its slide. With trading activity subdued, many investors and dealers have shied away from the market and left currencies listless. The dollar's recent recovery from record lows against the euro and a five-year low versus the yen cleared out many bets for the currency to fall, but analysts expect those short dollar positions to reappear when trading picks up.
"The core structure of the market is to be short dollar," said Jake Moore, forex strategist at Barclays Bank in Tokyo. "There's still plenty of interest to buy the euro."
The dollar was little changed from late New York levels at $1.3390 per euro, in sight of the all-time low of $1.3470. Traders said the market was eyeing a euro rise above $1.3500 in the near-term.
The dollar dipped to 103.90 yen but stayed well above the five-year low of 101.83 hit earlier in the month.
Many market players believe the dollar needs to drop further for the United States to correct its record current account deficit, and that US officials would thus prefer a weaker currency.
So far in 2004, the dollar has fell 6.4 percent against the euro and more than 3 percent versus the yen. Since its slide began in early 2002, the dollar has shed nearly 50 percent of its value against the euro and 26 percent versus the yen.
Helping to give the euro a small lift on Monday, a European Commission report said the euro was strong but not yet substantially out of line with fundamentals.
Topping off the reasons the market remains negative on the dollar, recent data shows speculators in the Chicago futures pits had a net short position on the euro in the week ending December 14 for the first time since 2001.
They had registered a record net long position on the euro just a month earlier.
Analysts said the big turnaround reflected the profit-taking on speculative short dollar positions in the past few weeks and likely meant the euro was poised to resume its gains against the dollar.