Thursday October 7, 2004 - 10:42:38 GMT
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INVESTICA Ltd - www.investica.co.uk
Caution ahead of payrolls
There will be increasing caution ahead of the US employment figures on Friday and narrow ranges are likely to prevail. If the dollar can push through resistance around 1.2250, there will be the potential for further stop-loss Euro selling which would strengthen the US currency towards 1.2180. Given the concerns over high oil prices, the more likely impact is that narrow ranges will prevail.
The dollar briefly strengthened to the 1.2250 level against the Euro on Wednesday, but it was unable to push through this level, retreating back towards 1.2280. The level of oil prices remained an important factor, especially as futures prices rose above the US$52 p/b level in New York. Without a decline soon, there are likely to be increased fears over the US economy and this will eventually damage the US currency.
Near-term direction will inevitably be set by the Friday US payroll report, especially as it will have political implications. A strong figure would boost President Bush and would be likely to enhance any dollar gains. Conversely, a weak figure would hurt Bush.
German industrial orders data was weak with a 1.5% August decline and there will be little confidence over the Euro-zone. ECB rates should be left unchanged. The Euro will be vulnerable if the ECB downgrades its view of economic prospects and suggests that interest rates will not be increased this year, although the markets have already downgraded rate expectation and this will lessen the impact.
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