Wednesday October 13, 2004 - 10:22:26 GMT
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INVESTICA Ltd - www.investica.co.uk
Widespread doubts protect dollar
The most important short-term factor is likely to be a lack of confidence in the Euro-zone and US economies, especially in view of still high oil prices. These concerns will make it difficult for the dollar or Euro to make progress, especially with a lack of US data. The net economic risks will tend to favour the Euro, but the large number of long Euro positions will also make it difficult for the Euro to make headway.
The Euro dipped just under the 1.23 level, but it managed to secure bidding interest below this level and it pushed back to 1.2320.
Uncertainty over US economic trends, coupled with the disappointing Euro-zone data, will make it difficult for either currency to make progress and this will maintain the threat of a flow of funds out of the dollar and Euro. Indeed, there will also be doubts over the performance of the Japanese and UK economies which will tend to increase the potential for currency flows into commodity and emerging currencies.
Oil prices remained an important factor with a temporary push above the US$54 p/b level before a retreat back to below US$53. US Treasury Secretary Snow warned that high oil prices will have some impact on the US economy, although he was keen to play down fears. Markets are likely to become more concerned over the outlook unless prices retreat back below the US$50 p/b level. The net risks are likely to be slightly dollar negative.
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