Dollar advances in technically driven session

The dollar strengthened against some major currencies on Wednesday in a technically driven session as investors took profits on other currencies.
"A lot of this has to do with the very natural technical correction from such extremely lofty levels achieved by such currencies as the Australian dollar and sterling over the last three months.
There's natural profit-taking going on," said Joe Francomano, vice president for foreign exchange at Erste Bank in New York.
By late afternoon in New York, the euro was down sharply against the yen at 135.50 yen. Against the dollar, the euro fell 0.7 percent to $1.2231.
The euro has shed about seven cents since hitting record highs against the dollar above $1.2900 in mid-February.
Against the yen, however, the dollar was down about 0.4 percent to 110.78 yen. Investors remained on alert for yen-selling intervention by Japanese monetary authorities, although an unexpected downward revision in Japan's growth data for October-December alleviated pressure on the yen.
Against the Swiss franc, the dollar was up about 0.4 percent at 1.2867 francs. Sterling was down more than 1 percent at $1.8031, while the Australian dollar dropped steeply, to US $0.7457.
"It's tough to find a clear-cut macro story for the dollar's rally," said Daniel Tenengauzer, vice president for foreign exchange at Lehman Brothers in New York.
He said investors are unwinding their previously held long positions in currencies such as the euro, yen, and sterling and "basically taking some risk off the table."
Traders said they were wary of buying the single European currency after it slipped below a key technical area against the dollar between $1.2330 and $1.2350 in the prior session.
Erste's Francomano said for the rest of the week, markets would be focused more on the fundamentals of currencies other than the dollar.
What investors have found in the last few sessions is that other currencies' fundamentals are not a strong as perceived, he said, referring specifically to the UK's record trade deficit for January, which has fuelled doubts about the strength of the UK economy.
Earlier, the US January trade deficit came in at $43.01 billion, compared with a revised December deficit of $42.69 billion. Economists' median forecasts had been for a January trade deficit of $42.05 billion.
The dollar had a brief sell-off against the euro after the trade data, but the single currency subsequently retreated against the greenback.
"Within the more long-term cycle in the dollar bear market, we are seeing a counter-trend rally in the dollar. Sometimes, during these periods, the underlying fundamentals move to the background," said Paresh Upadhyaya, currency analyst with Putnam Investments in Boston.
In Europe, European Central Bank Governing Council member Ernst Welteke said the German economy was showing signs of recovering, but only at a very sluggish pace. He said the country's economic trend depended more on global growth than exchange rates.