Tuesday July 13, 2004 - 09:45:01 GMT
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INVESTICA Ltd - www.investica.co.uk
The data this week will be important for the US currency and the net risks should still be weighted towards dollar weakness. The dollar recovery is still looking corrective at this stage with tough resistance at 1.2350. There is the potential for a further near-term consolidation and a break above 1.25 will be tough. If, however, the Euro does push above 1.25, Euro buying would be likely to accelerate.
The Euro strengthened to a high of 1.2435, but was unable to make a challenge on 1.2450 and the dollar strengthened back to 1.2360 in early Europe on Tuesday.
The Euro is likely to need fresh incentives to push higher. In this context, the US data this week will be important with the Wednesday retail sales report and Friday inflation figures setting the tone for interest rate expectations. Weak figures would encourage further dollar selling.
Before then, the US trade figures will be released today. Estimates are centred on a deficit around US$48.5bn. A deficit above US$50.0bn would reinforce negative medium-term dollar sentiment. Conversely, a figure below US$46.0bn would offer some immediate relief for the currency.
There has been some reluctance by longer-term players to buy the Euro and corporate hedging has been subdued so far despite concerns over the dollar's weakness. Although the Euro is likely to face tough resistance around the 1.25 level, the Euro could see accelerated gains if it pushes through 1.25 as there could be a rush to cover short Euro exposures.
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