Tuesday March 29, 2005 - 10:29:31 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar resistance will become tougher
The dollar remained strong in subdued trading on Monday and pushed to a high of 1.2855 before retreating to 1.2885 in New York. The Euro managed to secure some support in Asia and strengthened to a high of 1.2950 in early Europe, primarily due to the fact that the Euro is oversold. The Euro also gained some support from Euro buying against the yen and reduced expectations of a Chinese yuan revaluation, but was struggling to hold gains much above 1.2930.
Inflation and interest rate expectations will remain an extremely important short-term focus and the US currency will gain some support from optimism over the US data this week. There will also be continuing expectations that the Fed will move to a more aggressive monetary policy to curb inflation. These factors combined will offer dollar support and markets will be looking to challenge 2005 dollar highs. The US currency will, however, find it increasingly difficult to gain further strong support with doubts over the extent of buying interest as opposed to a covering of existing short positions.
There is also still likely to be structural Euro buying below the 1.30 level and this will make it difficult for the dollar to make further progress. There is also the possibility of at least a temporary pause in the selling of high-yield currencies. Given the underlying US structural weaknesses, dollar resistance is likely to be very strong in the 1.2750-1.2850 region.
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