Once again, we are awaiting the resumption of the US dollar's downward trend. Soon after the Sterling and the Euro broke through key resistance levels, they slumped.

However, our chief chart watcher, Eric Chong, is not worried. "Unless the Euro convincingly breaches the 1.18 support level and the Sterling falls below 1.81, this should be viewed as a healthy correction rather than a trend strengthening of the broad-based dollar," said Chong.

The fundamentals match this view. Particularly in the case of the Sterling, the Bank of England proved once again it is leading the global cycle towards higher interest rates. While European growth remains sluggish, we expect the Euro to benefit from the US dollar's weakness.

The main bone of contention is whether the Australian dollar has lost its shine. The concern is that the data there has softened significantly in recent times. With Asia continuing to outperform and the domestic economy still having considerable momentum behind it, rate hikes will likely come back into view after a break. This should ultimately push the Aussie to 0.79 by year-end against the US dollar and 1.25 against the Singapore dollar.

This fits our view that Asian currencies will also resume their strengthening trend as strong growth and healthy balance of payments positions attract more capital flows to the region. Expect the Japanese Yen to lead the way, with most other Asian currencies following.

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