Friday June 4, 2004 - 07:29:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar braced for payroll report
There will be underlying market caution due to the uncertainty over oil price trends, but the employment report will still be a vital near-term dollar influence. The currency reaction will also offer strong insights into underlying dollar strength and will determine whether the Euro can attack 1.25. Growth of over 260,000 would give the dollar an initial boost and a slight dollar rally is realistic, but the US currency will struggle to sustain any rallies unless growth is over 300,000. There is a 60% chance that 1.25 will be a realistic long-term target. Buy EUR/US$ if payroll growth is below 160,000. Take the opposite position if growth is above 270,000.
The employment report should be firm and a shock figure has been made less likely by the absence of Fed comments over the past 48 hours. The most likely outcome is that expectations of a 0.25% June US rate hike will remain in place, but this may fail to provide a sustained lift to the US currency as a hike has been factored into the dollar. The market focus on energy prices may limit the impact of the report, but the figures will still be vital for the US currency. A weak employment report should be avoided, but payroll growth below 150,000 would lead to heavy dollar selling pressure.
Opec ministers agree to increase oil output by 2mn bpd initially with a further 0.5mn bpd later in the year. The increase, coupled with higher US oil stocks, helped trigger a correction in oil prices and this should be a slight positive for the dollar, but caution will persist.
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