Wednesday December 22, 2004 - 11:08:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Near-term Euro resistance
Liquidity levels will continue to decline over the next 24 hours and this will increase the reluctance to maintain aggressive positions. Narrow ranges are likely to prevail, although volatility cannot be ruled out completely. Underlying dollar sentiment will remain weak, but the yield considerations will offer some US currency support and will tend to discourage aggressive dollar selling. The Euro is liable to hit further selling pressure just above the 1.34 level.
The dollar managed to strengthen back to 1.3370 in New York. The US currency retained a slightly firmer tone in early Europe at 1.3360, but was struggling to make much headway and weakened back to 1.3390.
The dollar was assisted by a rally on Wall Street, but hampered by the fresh violence in Iraq. The Dow Jones index strengthened by close to 100 points on Tuesday, pushing the index to the highest level since June 2001. The gains will help support short-term capital inflows and should also boost merger and acquisition (M&A) activity. The low level of M&A activity has been an important background element weakening the dollar over the past two years and strengthening inflows would at least lessen the risk of further sharp declines over the next few months.
The head of the IFO economic institute Werner-Sinn called for intervention to restrain the Euro and this will create caution over selling the US currency. There will inevitably be concerns over intervention, especially as thin liquidity during the Christmas period is the ideal time for intervention. The odds, however, are very much against a near-term move,
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