Friday December 24, 2004 - 10:50:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Markets test dollar downside
With low liquidity a continuing feature of the markets, there is further scope for markets to try and trigger stop-loss levels and accelerate dollar selling. There will also be no further near-term data. There is the potential for losses to at least 1.3580 and possibly 1.3650 by early next week. Some caution over US currency selling is, however, required above 1.3580, especially as liquidity is low.
The Euro managed to push above resistance at the 1.3420 level against the US currency and this, together with a break of 1.3470, contributed to further gains with the Euro peaking at a new record high of 1.3518. The Euro remained firm in early Europe on Friday at close to 1.35 before rallying further to 1.3540.
The renewed Euro gains will put the market focus back on to the possibility of intervention. The French Finance Minister Gaynard warned over the disastrous consequences of a strong Euro and there is likely to be further verbal intervention, but there is little evidence of a united front. The tensions will be increased by the fact that low liquidity during Christmas will make it easier for the banks to intervene. The overall market positioning and European stance, however, does not look favourable for intervention. Efforts at capping the Euro will be much more effective, and probably only viable, if there is US support and this appears unlikely.
The headline durable goods report showed a 1.6% monthly increase for November. There was a decline excluding the transport sector but, more positively, there was an increase in capital goods spending. Jobless claims and consumer sentiment were stronger than expected. The personal spending data was in line with expectations and the inflation indicator remained subdued, which will ease immediate pressure for a more aggressive Fed tightening. The overall growth and yield factors should still offer some dollar support.
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