Wednesday July 13, 2005 - 10:01:17 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar faces trade test
The US dollar remained under pressure during Tuesday and weakened to lows just beyond 1.2250 against the Euro before recovering back to 1.2215 in early Europe on Wednesday. The dollar subsequently extended gains to 1.2180 as the pressure for a reduction in long dollar positions eased, but markets were cautious.
There has been further position adjustment on the US dollar with markets also increasingly cautious ahead of the US trade data on Wednesday. The data will certainly have important implications, especially if it is outside a US$54-60bn range. In particular, a deficit above US$60bn would reinforce market concerns over the US structural deficits and would also provide a tough test of underlying dollar confidence. The market reaction to the data will also be an important indicator of underlying market conditions.
As well as the trade data, the US will release the latest budget data and the Congressional Budget Office will also issue revised budget figures. The near-term trends should remain favourable and will offer some dollar support, although the longer-term trends will still cause concern, especially if the forthcoming US growth data is disappointing. The budget implications illustrate the risk posed by weak US growth. In this context, the sales and inflation data tomorrow will also be very important for the dollar.
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