Wednesday June 9, 2004 - 09:23:37 GMT
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INVESTICA Ltd - www.investica.co.uk
Strong dollar gains unlikely
Dollar selling will be discouraged by renewed speculation that the Fed may tighten more aggressively and lower oil prices should offer support but there is unlikely to be strong buying interest and it will be difficult to trigger a strong break in either direction. The Euro continues to represent poor short-term value above the 1.2350 level. Support should survive at 1.2200 with longer-term buying likely, although a break of this level could trigger a deeper correction to 1.2150.
The Euro was unable to push through resistance at 1.2350 and weakened significantly to a low of 1.2255 in New York. The Euro remained on the defensive in early European trading on Wednesday with a move to test support at 1.2200/20.
In part, Euro losses reflected a natural correction after recent gains, but the comments from Fed Chairman Greenspan were also significant. Greenspan stated that the Fed was aiming for a gradual tightening of policy, but he also stated that the Fed would do what was required to keep inflation in check. This revived the possibility of a more aggressive tightening, although Greenspan's primary aim is to give the Fed as much flexibility as possible. The economic and market risks in tightening more slowly than the market is expecting is lower than being forced to increase rates faster than expected. Greenspan's comments also discouraged aggressive position taking in high-yield currencies.
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