Thursday July 15, 2004 - 09:48:59 GMT
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INVESTICA Ltd - www.investica.co.uk
US inflation in focus
Unless the US inflation figures are strong, the dollar still looks vulnerable in the medium term due to fears of a growth slowdown allied with underlying structural weaknesses. The Euro is likely to hit near-term resistance at 1.2420 and a period of range trading appears the most likely outcome for now with the Euro needing further consolidation of July's gains. At this stage, the medium-term target of 1.25 still looks realistic with good initial Euro support on any dips to 1.23.
The Euro strengthened to a high of 1.2420 after the US retail sales data, but it was unable to sustain these gains and it weakened back to 1.2340 in early Europe on Thursday.
Headline US retail sales fell 1.1% in June and there was also a 0.2% decline in underlying sales. The report will maintain fears that the US economy is slowing, although the damage will be limited by upward revisions to previous figures. The fears of a slowdown are, however, becoming entrenched and the dollar will need some strong reports quickly to reverse this sentiment.
The immediate focus will return to inflation data with producer price data due today and consumer price data on Friday. Market estimates are for a 0.2% increase for both figures. Low figures will reinforce expectations of a measured Fed tightening and would tend to undermine the US currency. Conversely, a monthly increase above 0.3% would be likely to offer the US currency support, although the real test would be whether the dollar could sustain any gains.
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