Friday January 6, 2006 - 11:10:04 GMT
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INVESTICA Ltd - www.investica.co.uk
Payrolls to set dollar direction
Consolidation was the dominant theme on Thursday with the Euro vulnerable to a correction following the jump higher over the previous 48 hours. The EUR/USD rate fluctuated close to 1.21 for most of Thursday with the dollar unable to secure any momentum for a more significant recovery. The dollar was holding just stronger than 1.21 in early Europe on Friday in cautious trade.
The Friday employment report will inevitably set the tone for trading over the next week and a strong figure could force some fresh reassessment of likely Fed intentions on interest rates. From a medium-term perspective, the dollarís inability to make headway after firm data during Thursday will be unsettling for the US currency and suggests underlying Euro demand. The underlying capital flows will also remain less favourable for the US currency as repatriation flows have ended.
There was a rise in Euro-zone business confidence while there was a larger than expected rise in German industrial orders for November, maintaining the run of favourable Euro-zone data. A February interest rate increase remains a realistic and the overall robust Euro-zone growth outlook will provide a firm Euro backdrop over the next few weeks.
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