Friday October 15, 2004 - 10:11:43 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar near tipping point
The US data has been negative over the past 24 hours, which will damage dollar sentiment, and a poor series of data today could tip the US currency towards heavy losses. The US currency will still be protected by the substantial number of long Euro speculative positions, especially with the pressure to close long positions ahead of the weekend. The Euro will still find it very difficult to break above the 1.2420/40 resistance band unless the US data is very weak.
The dollar has remained on the defensive for much of the past 24 hours although it has managed to avoid a decline through important support levels against the Euro. In early Europe on Friday, the dollar was just stronger than the 1.24 level.
The US data was weak and will undermine underlying dollar sentiment. The August trade deficit was worse than expected with a US$54bn shortfall, the second highest deficit on record, after an upwardly revised US$50.5bn shortfall in July. Export growth was held to 0.1% and there was a sharp increase in oil imports. The average oil price was US$36.4 p/b for the month and there will be further unease over future trends given that prices are now close to US$55 p/b.
The jobless claims data was also disappointing, with the 4-week moving average rising to the highest level since the end of February. If the US economic data today is disappointing as well, the concerns over the US economy are liable to increase, exposing the dollar to selling pressure. Market concerns over the twin US deficits will be increased by the record US$416.5bn budget deficit for 2003/04. There is little confidence that either presidential candidate will be able to cut the budget deficit significantly and this will tend to undermine dollar confidence.
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