Monday December 20, 2004 - 11:35:03 GMT
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INVESTICA Ltd - www.investica.co.uk
Setback to dollar correction hopes
There will be major concerns that the dollar has failed to make and sustain greater gains given the very large shift in speculative positions. This suggests that there is heavy underlying dollar selling pressure. The chances of a strong dollar correction stronger have receded sharply.
The dollar strengthened to a high of 1.3220 against the Euro early in New York on Friday, but the US currency was unable to sustain these gains and it weakened back to 1.33. The dollar was trading weaker than 1.33 in early Europe on Monday and subsequently weakened to a low of 1.3370.
The latest IMM positioning data was very significant and will have an important impact. The data reported a decline in long Euro positions of over 38,500 in the latest week and this resulted in a net short position in the Euro for the first time in over three years. Even then, there was only a marginal short Euro position. This will limit the potential for a further dollar rally stronger and it also suggests that there was heavy underlying Euro buying.
If there is very heavy underlying Euro buying, this would also substantially reduce the potential for central bank intervention to support the US currency as the banks would be unlikely to make any impression in supporting the dollar. The switch in speculative positioning also suggests that the central banks have actually been successful in curbing speculative dollar selling.
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