TOKYO (AFX-ASIA) - The dollar resumed its downward trend in midafternoon trade after a mild bounce in the morning on continued fears over the US economy, financial markets and current account deficit, dealers said. "People are worrying about the huge deficit in America ... and the excessive optimism in the US recovery," Ryohei Muramatsu, treasury and forex division manager at the Tokyo branch of Commerzbank, said. "If the economies in Japan and Europe are recovering then the flows will stay in their own countries. The New York stockmarket is very weak but the Nikkei's stable," he said. "The upside potential for the dollar is very limited." US Treasury Secretary Paul O'Neill's testimony tomorrow to the Senate on the US foreign exchange policy is unlikely to provide any shocks, Muramatsu said. "He will never change these words because there is reality and the public stance," he said, but added that the US government will allow the dollar to depreciate if it becomes necessary. In the meantime, the dollar is strongly supported at the 127.25 yen level on a technical basis, followed by the year's low of 126.36 yen, with resistance seen at 128.35. The euro is also rising against the dollar, but traders are seen remaining wary over the currency after countless earlier disappointments. "The euro is very difficult to predict because so many times we were disappointed," Muramatsu said.