Dollar nearing technical support: TRA's Yamada

By Emily Chasan

NEW YORK (Reuters) - The U.S. dollar is off its lows for the year but is likely to depreciate further to the point where it tests critical technical support levels, Louise Yamada, founder and managing director of Technical Research Advisors, said on Tuesday.

"The dollar is very distressing because it has been testing a 28-year support level," Yamada said at the Reuters Investment Outlook Summit in New York.

The dollar has fallen more than 5 percent this year against an index of major currencies .DXY, to 86.2, on concerns about widening global imbalances, rumored reserve diversification and a growing consensus that the Federal Reserve is close to ending its two-year campaign of raising interest rates.

Indeed, were it not for a sharp rebound since the start of the month, the dollar index would likely be back below 84 -- at the one-year lows plumbed recently and much closer to the critical 80 level, Yamada said.

"Eighty is really a critical support that goes all the way back through the history of the dollar," Yamada said. "I suspect it's not going to go through immediately but ... the dollar is set to become less valuable."

Tempering its decline for the year, the greenback has rebounded a bit, last week registering its best gain in the past year as investors shed risk by parking money in cash. But the dollar faces significant pressure and competition from other currencies, which could turn it around again.

"What has happened since 2002 is what I've been calling the laissez-faire devaluation of the dollar," Yamada said.

"Growth driven by high business investment leads to currency strength, but growth that is borne on the back of consumption and government spending leads to currency weakness," she added, echoing investor concerns that U.S. consumers continue to spend money despite the threats of higher interest rates and slower growth.

She said the dollar is also poised to see far more competition from rivals such as the euro and China's yuan.

"One of the things that bothers me the most is I think the dollar is starting to lose its reserve status," Yamada said.

"You've got Venezuela that won't accept dollars for oil, you've got Iran that is going to have a euro board for energy, Russia is starting to consider only accepting euros for oil -- and it is happening in a very slow fashion so that people are not putting together the negative effect this can have."