Monday July 4, 2005 - 09:48:33 GMT
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INVESTICA Ltd - www.investica.co.uk
The Euro lost support at the 1.20 level after volatile trading in New York on Friday and this pushed the Euro down to a low of 1.1950 with little sign of relief early on Monday. The Euro weakened to near 1.1900 before a slight recovery There has been a slight shift with to more general buying interest in the dollar rather than Euro selling and the Euro support continue to gain some greater support on the crosses.
The US data was stronger than expected on Friday and this helped strengthen the US currency. The University of Michigan consumer confidence index rose to 96.0 in June from levels below 88.0 in May and the ISM manufacturing index strengthened to 53.8 in June from 51.4 the previous month with the orders component was strong. The optimism was undermined slightly by a poor reading on employment with the index staying below the 50.0 level, but confidence in the US economy will remain stronger in the short term. There will be expectations that US interest rates will continue to rise over the next few months. These expectations will reinforce short-term dollar optimism and the impact will be magnified by the market expectations of lower interest rates in Europe. The payroll data on Friday will be important for underlying confidence in the US economy and dollar.
The break down below 1.20 will undermine near-term Euro confidence and markets will be looking at medium-term levels around 1.1760. The level of longer-term flows at current levels will also be very important for the US currency and will help determine whether the shorter-term investors will be able to push the dollar stronger.
The latest IMM positioning data recorded a decline in short Euro positions of over 6,000 contracts in the latest week, cutting the short position to just over 14,000 contracts. This will lessen the potential for the Euro to gain strong support from a short covering rally.
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