Wednesday July 28, 2004 - 09:47:41 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar sensitive to US data
The dollar will be supported by optimism over the US data and growth prospects. The price action yesterday also suggests that there are still short dollar positions to be covered. The US currency will, however, be vulnerable if the data today is weak and longer-term structural weaknesses will persist. Volatility will also be a persistent near-term threat. From a longer-term perspective, the dollar offers little value at current levels even with the potential for a near-term challenge on 1.2000 and possibly 1.1950.
The Euro failed to push though 1.2185 against the dollar after the firm IFO data on Tuesday and the US currency gained sharply after the US consumer confidence figures. The dollar strengthened to a high of 1.2040 and held the gains in early Europe on Wednesday before strengthening again.
US consumer confidence rose to 106.1 in July from 102.8 in June. Although the data was firm, the market reaction was stronger than would normally have been expected. This illustrates the market's concentration on whether the US economy is rebounding from the June weakness. The dollar gains also illustrate the fact that there were still a large number of short dollar positions in the market. These factors will keep the Euro on the defensive in the short term, but the US currency will also be vulnerable if the US data is disappointing. In this context, the durable goods orders data later today will also be more important than usual. The consensus forecast is for an increase of 1.9%.
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