Friday May 20, 2005 - 09:55:40 GMT
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INVESTICA Ltd - www.investica.co.uk
Import surge confuses dollar outlook
The dollar strengthened to 1.2610 against the Euro, but was unable to sustain the gains and the currency weakened to 1.2635 in New York on Thursday with little change in early Europe on Friday.
The US jobless claims were lower than expected with a decline to 321,000 in the latest week from 341,000 previously. The Philadelphia Fed survey was disappointing, however, with a sharp decline to 7.3 in May from 25.3 the previous month. The employment and orders indicators were also relatively disappointing. Following the very weak New York report on Monday, there will be renewed fears over the manufacturing sector, although the primary near-term factor is likely to be uncertainty over economic direction rather than a sustained loss in confidence.
Some April import figures from major US ports were released on Thursday and they recorded strong import growth of close to 30% over the previous month. The data will maintain speculation that the March trade deficit was distorted lower and that there will be a strong rise reported in the April deficit. The immediate impact should be limited with general dollar sentiment still firm in the short term and the overall evidence suggests that selling pressure will remain weak in the short term. It will, however be important to assess the number of long dollar positions in the market. Evidence of a sharp increase would make it more difficult for the US currency to make any further headway and would increase the risk of a sharp correction.
The Euro-zone industrial sector remained weak with a drop in output while the underlying inflation rate fell to 1.4% in April from 1.6% the previous month. The weak Euro-zone outlook will continue to offer short-term dollar protection.
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