The dollar crept lower on Wednesday, as dealers took profits on its recent climb to two-week highs, but the currency was delicately balanced by technical factors that could swing the greenback in either direction.
Analysts and traders were befuddled by a host of issues that clouded the dollar's near-term course, such as see-sawing oil prices and an absence of firm conviction in the currency markets about where the US economy and interest rates are headed in the aftermath of Hurricane Katrina.
"We're at a fairly critical juncture as to where the market is going to go," said Mark Shawzin, managing director and senior trading advisor of Protrade Capital Group in Los Angeles. "I think we're getting closer to the moment of truth of the next direction in the market."
By late afternoon, the euro was up 0.1 percent on the day at $1.2282, while sterling was also up 0.1 percent, at $1.8241.
The dollar was down 0.3 percent at 1.2579 Swiss francs and had pared some losses against the yen to trade at 110.33 yen, down 0.3 percent.
The US dollar index ticked down 0.12 percent to 87.65.
Shawzin noted the difficulty that the dollar index had in July sustaining a move above 90 and more recent resistance at the 88.45 level could mean the resumption of a long-term downtrend for the dollar.
However, the catalyst is unknown, said Shawzin.
Mixed US retail sales and softer-than-expected growth in industrial production data for August did little to move currency prices much, although mild downward pressure on bonds pushed up yields and limited the dollar's downside.
Earlier in the US session, headline retail sales fell 2.1 percent, according to the Commerce Department, almost twice as much as economists had expected. Yet the pace of growth in sales excluding autos was twice as fast as they had predicted, at 1.0 percent.
Industrial production rose 0.1 percent in the month, compared with analysts' forecasts of a 0.3 percent rise. The Federal Reserve blamed Hurricane Katrina for the slower pace of growth, even though no more than a few days production could have been affected.
John Kosar, president of Asbury Research, argued that the dollar index is on the verge of resuming a 2005 rally based on technical levels.
A rise in the index above chart resistance at 87.80 and then 88.10 "would help confirm our bullish bias by indicating the July downtrend is over, and suggesting the larger 2005 uptrend has resumed," said Kosar.
Expectations for higher US interest rates have helped the dollar this year. But with so much economic data to digest this week, bond and currency markets have yet to take a firm bet on how aggressive or otherwise the Fed will be in raising rates between its meeting next week and the end of the year.
On the more immediate horizon, traders will be looking to US inflation numbers, the Philadelphia Fed business index, second quarter current account and July capital flows data over the next 48 hours for direction.
Some traders will also watch for a monetary policy decision by the central bank of Brazil due later on Wednesday. Analysts are widely expecting a cut in interest rates but are split as to by how much.