Friday January 28, 2005 - 11:10:51 GMT
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INVESTICA Ltd - www.investica.co.uk
Focus back on US data
Immediate direction will be determined by the US GDP and inflation data later today while uncertainty over China's yuan policy will also lead to intra-day volatility. Overall, the Euro is likely to secure further buying interest on dips below the 1.30 level. If the GDP data is in line with forecasts, the dollar is likely to have a slightly weaker bias, especially with market concerns over the Iraq elections and US fiscal policy. The US currency should find good short-term support on any near-term dips towards the 1.3150 level.
The dollar strengthened back to 1.3010 against the Euro before edging lower to 1.3035 in New York. The Euro was little changed in early Europe on Friday. The US currency fared less well against other major currencies with declines against high-yield currencies.
The US economic data was close to expectations with durable goods orders rising 0.6% for December after a revised 1.8% increase in November. Jobless claims rose to 325,000 in the latest week from 318,000. The markets are not focussing strongly on economic data, but the GDP report will still be important for the dollar on Friday. The US currency will secure some benefit if growth is around 4.0%. The inflation data could well be more important for the dollar as this is likely to have a greater impact on the Fed's policy and ultimately the dollar. Official inflation recorded in the deflator figure should stay under control, but any increase would tend to strengthen the dollar on expectations that the Fed may have to increase interest rates more aggressively.
Global exchange rate policies will remain important ahead of the G7 meetings next week. Markets are expecting G7 to maintain the same stance in public, namely opposing excessive market moves and promoting greater flexibility in Asia. In the context of Euro/dollar, the US currency will be vulnerable if there are tensions between the US and Europe over the US deficits.
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