Thursday May 13, 2004 - 09:43:05 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
Global positioning dominates dollar
Daily Market analysis 13/05/04
Key factors today:
The US data on retail sales and producer prices will be important for the markets, especially with increased fears over inflation. Wider risk aversion trends will also be important.
The trade deficit figures have underlined medium-term dollar risks, although risk aversion and US rate trends will remain dominant market factors for now. Overall, the US currency is likely to hit tough resistance on any fresh rallies back to the 1.1820 area even if inflation figures are higher than expected. There will be initial dollar support at 1.1920, but with the threat of a deeper retracement to 1.1980.
The dollar weakened to a low of 1.1940 against the Euro, but selling pressure was not heavy and the US currency rallied back to 1.1850 in early Europe on Thursday as market attention remained on interest rates and global flows.
The dollar retreat was triggered by the US trade deficit figures which recorded an increase in the deficit to a record US$45.96bn in March. Imports rose strongly with sharp increases in consumer and capital goods while energy imports also rose strongly. The export figures were actually relatively encouraging, but the deficit will still be a high medium-term risk factor for the dollar. The measured dollar correction suggests that attention is not fully focussed on the US deficits with interest rates and risk aversion still dominating market sentiment.
The US inflation figures over the next 36 hours will be important given the increased market focus on price increases. Although higher inflation would encourage the Fed to increase rates more quickly and could be dollar supportive, there will also be fears that inflation will be negative for the dollar. This will be a greater dollar risk if the bond and equity markets suffer further significant damage.
There has been renewed selling of high-yield currencies over the past 24 hours and risk aversion remain at a very high level. The covering of carry trades will offer some dollar support, although it would tend to be negative for the dollar in the medium term given the substantial US current account deficit. In this environment, currency volatility will remain a major threat.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."