Monday October 25, 2004 - 10:08:20 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar in disarray
Underlying dollar concerns will persist and US currency sentiment is likely to remain very weak in the short term. There is also little official concern over the Euro's level, but the central banks will want to keep markets orderly and some warnings over excessive movements are increasingly likely. There is a clear risk that the markets will try to attack all-time lows beyond 1.29, but the dollar should be able to secure at least a minor technical correction first, especially with the dollar oversold.
The dollar has remained under heavy downward pressure and has been unable to secure significant relief. The US currency weakened beyond the 1.2650 in late trading in New York on Friday as players took advantage of low liquidity and this prompted further dollar selling with a move to 1.2790 in early Europe on Monday before a marginal recovery to 1.2765. Subsequently, the dollar weakened again to 1.2805.
Dollar sentiment will remain very weak in the short term with further concerns over the US current account deficit. There will also be further speculation that the US Federal Reserve will not increase interest rates beyond 2.0% given that the economy will be slowed by high oil prices. Oil prices have remained above the US$55 p/b level in early Europe on Monday due to further fears over supply shortages. The dollar will also be vulnerable if Wall Street extends losses after the decline to a 2004 low on Friday.
Potentially of greatest concern for the US currency is the lack of European concern over the situation. The European officials still appear comfortable with a strong Euro, especially as it will help counter the impact of high oil prices. The official comments will remain under close scrutiny especially if the dollar weakens to near the 1.29 level and ECB President Trichet may comment on the Euro situation later today.
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