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Where the Dollar Is Headed Now

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The dollar is getting a lift as worries about Greece and the European Unionsummit dent risk appetite.

Whether it will last is another matter.

Another European Union summit, another bout of investor risk aversion - and another good day for the dollar.

Can it last?

Camilla Sutton, chief currency strategist for Scotia Capital, thinks the medium term outlook for the dollar is less than great. "We would expect that in the medium term the euro is weak; but the Canadian dollar, Australian dollar, and British pound are strong against the U.S. dollar," she told me.

Sutton sees several problems facing the dollar. The Federal Reserve's low interest rate policy tops her list, along with Fed Chairman Ben Bernanke's comments that more quantitative easing is possible if conditions warrant.

Strategists at Goldman are also bearish on the buck. In their view, "much of the bad scenarios have been priced by the market," so there is not much room for increases in risk aversion to lift the dollar. "From a tactical point therefore, the scope for further escalating risk aversion may be smaller than the relaxation of already rich risk premia. This would imply more downside risk for the dollar and less downside risk for the euro than before," they wrote in a note to clients.

Dollar buyers, be careful out there.

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