Thursday May 25, 2006 - 10:14:02 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar consolidation continues
Trading conditions are liable to remain hesitant and volatile in the short term due to continuing uncertainty over US economic trends and interest rate policy. A set of strong GDP and housing data today would offer dollar support, although rallies are likely to be met strong institutional Euro demand. Overall, the consolidation phase is likely to continue in the short term unless the US data is extreme.
The dollar weakened to 1.2885 after the US durable goods data on Wednesday, but the US currency was able to rally following stronger than expected housing data and strengthened to highs around 1.2730 before a retreat to 1.2770.
US durable goods orders fell by a sharper than expected 4.8% in April, undermined by a drop in transport orders, although the fall was primarily a reaction to the very strong data the previous month. New home sales rose 4.9% to 1.20mn in April after a small downward revision to Marchâ€™s data. There was small increase in prices and the number of un-sold homes also fell slightly which will underpin confidence in the sector. The existing home sales data will be important on Thursday and the dollar will now be more vulnerable to selling pressure if there is a weak reading.
The GDP data will also be important on Thursday with investors looking for further evidence on inflation trends. Given contradictory data, uncertainty over the June Federal Reserve interest rate decision will persist in the short term and this will contribute to volatile trading as expectations are adjusted.
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