Monday March 28, 2005 - 10:09:44 GMT
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INVESTICA Ltd - www.investica.co.uk
2-way dollar action below 1.2930
The dollar has remained strong, supported by expectations of a faster pace in US interest rates. The dollar pushed through support levels at 1.2970 on Thursday and 1.2930 in Asia on Monday, with a high of 1.2885 before a slight dollar retreat. Trading will remain subdued in the very short term with market holidays in Europe on Monday and no significant US data releases.
Interest rate trends will tend to dominate in the short term with continuing expectations of a faster pace of Fed interest rate increases. Comments from Fed officials will be important in the short term, especially as the US data is concentrated over the second half of the week. Any hints over a faster pace of tightening will offer near-term dollar support and there is likely to be optimism ahead of the Friday employment report, although much of the good news may now be reflected in the dollar's level. Levels stronger than 1.30 are also likely to attract longer-term structural Euro buying.
The latest IMM data recorded a small decline in long Euro positions of close to 3,000 in the latest week, but the long position was still recorded at close to 28,000. Although long positions will have been closed since the latest report, the positioning evidence will certainly lessen the potential for a near-term Euro recovery. There is, therefore, likely to be strong two-way market interest in the dollar at levels below 1.30. Once the short-term dollar buying has been completed, the US currency will be more vulnerable again.
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