Monday October 3, 2005 - 10:00:07 GMT
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INVESTICA Ltd - www.investica.co.uk
Yield plays dominate
The dollar made a fresh attack on Euro support in Asian trading on Monday and pushed to a high of 1.1925 on stop-loss dollar buying before a retreat to 1.1960.
The US data was mixed on Friday and there will be further conflicting data in the short term. The personal income and spending figures reported falls for August while the University of Michigan consumer confidence index failed to rally from the weak early-month estimate. There will be further concerns over the outlook for consumer spending over the next few weeks, especially with energy prices still at historically high levels. Car sales and corporate retail spending reports will be watched closely this week for spending evidence.
The Chicago PMI manufacturing report was, however, stronger which will offer some optimism over the manufacturing survey, although there will be concern over a weak employment component. The national ISM manufacturing report will be watched closely on Monday. As long as the US data appears to be holding up reasonably well, the dollar will be in a position to gain further support from expectations over an increase in interest rates. The Federal Reserve remains committed to further interest rate increases and the US currency will gain from yield considerations. The equation will, however, change sharply if there appears to be a sustained downturn in consumer spending as there would be strong Fed pressure to stop rate increases.
Although, there appeared to be an absence of longer-term Euro buying on Monday, there is still likely to be underlying buying close to current levels which will make it difficult for the US currency to extend gains. The Euro-zone PMI index pushed up to 51.7 in September from 50.4 in August.
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