Monday May 16, 2005 - 09:56:56 GMT
Share This Story
INVESTICA Ltd - www.investica.co.uk
Shallow dollar correction realistic
The dollar remained strong on Friday and was jolted only marginally by a weak consumer confidence report. The US currency strengthened to 1.2610 against the Euro and remained strong in early Europe on Monday with a move to 1.2590. Lower oil prices will offer some support to the US currency.
The University of Michigan consumer confidence index weakened to 85.3 in early May from 87.7 the previous month which was worse than expected, but the figure had little immediate impact. There will be greater concern if the drop in oil prices does not spark a revival in confidence and this could indicate that there are more serious underlying confidence issues surrounding US consumers surrounding high debt levels and weak real earnings growth. These are certainly realistic longer-term concerns.
The latest IMM positioning data recorded a decline in long Euro positions of close to 6,500 in the latest week and there is now a net short Euro position of around 1,500 contracts. This will reduce the risk of further Euros selling on positioning grounds and there is also a wider net long dollar position, although the figure is by no means extreme.
The capital inflows data will be significant today, although the importance has been lessened by the fact that the recent US data has been encouraging. This will make it easier for the US currency to resist selling pressure if the inflows are weaker than expected. There will be the possibility of longer-term Euro fund positions being cut, but these downward pressures will still be offset by the risk of reserves diversification into the Euro as banks will want to reduce their dollar holdings. The underlying reserve shifts out of the US currency will limit the potential for dollar gains.
There is the possibility that short-term dollar gains will be boosted by a capitulation on short dollar positions taken out to fund positions in high-yield and commodity currencies. There have been rumours of hedge-fund difficulties over the past few days as these trades have been unwound. There will also be the possibility of a vicious circle as dollar gains will put further downward pressure on commodity prices. This is similar to the position seen last year when the dollar strengthened during the second quarter.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."