Friday November 12, 2004 - 10:44:17 GMT
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INVESTICA Ltd - www.investica.co.uk
Where next for the dollar?
Dollar sentiment will remain weak with markets still convinced that the US currency will face further depreciation to fresh record lows over the next few weeks. The ECB warning comments will discourage near-term aggressive dollar selling and there is the potential for a covering of short positions which will encourage a further near-term market consolidation. The US currency still needs to strengthen through 1.2850 to help neutralise very weak sentiment and this will be tough with the risks switching back to dollar selling pressure if it fails today.
European officials have continued their verbal intervention against further Euro gains with the officials yesterday all commenting on the situation. ECB Chairman Trichet repeated his comments issued earlier in the week, but he did not step up the level of rhetoric. Intervention remains unlikely in the short term, but the ECB has managed to inject some caution over selling the dollar aggressively and this contributed to calmer markets during Thursday. The ECB's main concern will be to keep dollar selling under control and they will not want to get into the trap of defending specific levels. An aggressive support of 1.30 is therefore unlikely, although some form of covert intervention is a possibility.
Oil prices weakened back to near the US$47 p/b level and there was a further rally on Wall Street. Increased interest in global equities should offer some support to the US currency. Underlying sentiment will, however, remain weak and markets will need a convincing argument to reverse their negative sentiment. The US retail sales report will be released today and this is unlikely to spark a shift in sentiment, but a growth figure above 0.3% could at least encourage a further closing of short dollar positions.
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