Thursday May 20, 2004 - 07:31:44 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar waits for fresh incentives
The US jobless claims and Philadelphia Fed data will be significant, with markets also on alert over any interest rate comments from Fed Chairman Greenspan.
The Euro and dollar will struggle to secure a convincing break in the short term, with markets unsettled by risk aversion, the impact of high oil prices and uncertainty over longer-term direction. In this environment, range trading is liable to persist with the Euro hitting tough initial resistance at 1.2050. The dollar could push to the 1.1880 level, but strong dollar gains will be difficult without fresh incentives and long positions offer little value at current levels.
Euro/dollar trading has been relatively subdued over the past 24 hours due to the fact that attention was focussed elsewhere, particularly on high-yield currencies, although the dollar has regained ground. The Euro strengthened to 1.2040, but was unable to push through 1.2050, hampered in part by rumours of Euro selling from an Asian central bank. The Euro retreated to 1.1950 in early Europe on Thursday as markets traded recent ranges and the dollar subsequently strengthened to 1.1915.
US Fed comments will remain in focus in the short term. Fed officials are still likely to promote the benefits of a steady tightening of monetary policy and will continue to prepare the markets for a rate increase, but it is is doubtful whether the dollar will secure any great benefit as rate expectations are priced in. Wider uncertainties over inflation will also continue.
There will also be concerns over the Iraq situation, especially after the fresh allegations of US attacks on Wednesday and longer-term unease will persist. Political risks will tend to restrain the US currency to some extent.
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