Tuesday November 16, 2004 - 10:52:36 GMT
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INVESTICA Ltd - www.investica.co.uk
Capital data crucial for dollar
Immediate direction will be set by the US Treasury capital flows report today. A figure below US$50bn would be likely to damage the US currency and overall US dollar sentiment will remain weak. There are, however, a very large number of short dollar positions and the US currency will also gain support from a decline in oil prices and higher equity prices. The markets want to push the US currency through the 1.30 level with a potential move to 1.3120, but the net risks suggest that the Euro offers little short-term value beyond 1.30.
The dollar resisted a further challenge on the 1.30 level and remained in a close range around the 1.2950 level for much of the day. The US currency was unable to push through 1.2920 in New York and was close to 1.2950 in early Europe on Tuesday. European finance officials expressed concern over the Euro's rise, but the comments were fairly mild and did not signal extreme unease over the situation. Reaction to any move beyond
The US Treasury capital report will be very important later today given the focus on the US current account deficit. There have been market suggestions that inflows could dip below the US$30bn level. A figure of this level would be substantially below the monthly current account deficit and would also increase fears over deficit financing. A figure above US$65bn would be likely to offer near-term relief.
Indicators suggest that risk aversion has eased and there has been a further decline in oil prices, together with firm equity prices. In this environment, there will be some support for the US currency.
The latest IMM data reported a further 4,000 increase in long Euro positions against the dollar, pushing the total to a fresh record high of around 57,500. The extent of short dollar positions will increase the risk of a significant corrective Euro retreat.
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