Thursday October 14, 2004 - 09:55:45 GMT
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INVESTICA Ltd - www.investica.co.uk
Markets looking for poor US data
Immediate direction will be set by the US trade figures and a monthly deficit above US$53bn would unsettle the US currency, especially if oil prices remain high. The markets are, however, positioned for a bad figure and a deficit close to expectations could offer some short-term dollar relief. Given the high number of long Euro speculative positions, there is still likely to be tough resistance above the 1.24 level unless the US trade figures are extremely bad.
The Euro dipped to a low of 1.2230 against the US currency early in New York, primarily due to the sharp dip in commodity prices. The sharp decline in prices eroded the Australian and Canadian dollars and this helped underpin the US currency given that much of the commodity-currency buying had been funded through the US currency. There was also a sharp decline in oil prices which helped the dollar. There was, however, a sharp reversal later in New York with oil prices rallying back above US$53 p/b and this pushed the Euro back to 1.2340 in late New York. The Euro remained firm in early Europe on Thursday just above the 1.2350 level.
The dollar was hampered slightly by a poor Dow Jones performance with a temporary decline to below the 10,000 level. There will be some concerns over capital flows into the US if equity prices remain weak. The trade deficit will be important in the short term and there will be concerns that high oil prices will create a further widening in the deficit over the next few months. A deficit below US$49bn would offer some temporary dollar relief, but underlying concerns will persist.
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