Friday August 5, 2005 - 10:21:20 GMT
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INVESTICA Ltd - www.investica.co.uk
Payroll reaction vital
The dollar secured some respite against the Euro ahead of the New York opening during Thursday, but the US currency came under fresh selling pressure in New York. The dollar lost support at the 1.2350 level and this pushed the dollar to a low of 1.24 before a marginal recovery.
There have been further rumours of central bank Euro buying over the past 24 hours which have supported the Euro. Overall options trading suggests that the markets are still relatively calm and great caution is required due to the impact of low liquidity and choppy trading during August. The US data today could have an important impact in determining whether this calm is maintained or whether there is a more definitive shift in market sentiment.
The employment data on Friday will be much more important. A strong figure would reinforce confidence over the US economy and expectations of further increases in interest rates. The markets have, however; discounted a lot of favourable dollar news and this will tend to limit the scope for renewed dollar buying interest. If the US currency is unable to rally on favourable data this would increase the risk of fresh selling pressure on the US currency and a more decisive shift in confidence. Conversely, if the dollar is able to strengthen, this would tend to revive near-term confidence in the currency.
The ECB left interest rates unchanged at 2.0% during Thursday and overall Euro sentiment is likely to remain slightly stronger in the short term with greater confidence in the economy. There will also be greater speculation that the next move in interest rates will be for an increase as compared with expectations of a cut evident during June and July. It is, however, unlikely that there will be a short-term move to change interest rates from 2.0% at present.
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