Monday August 23, 2004 - 09:58:12 GMT
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Risk of stop-loss volatility
There will be a lack of fresh developments in the short term and it will be difficult to break out of existing ranges. Low liquidity will, however, pose some threat as stop-loss levels could be triggered more easily than usual. Underlying dollar risks will continue, but given the substantial number of long Euro speculative positions, the dollar will need more bad news to weaken. Overall, the Euro is liable to weaken to 1.2220 as long Euro positions are cut before rallying.
The Euro failed to push above 1.2380 and weakened back to 1.2320 in New York on Friday. The Euro remained on the defensive in early Europe with a retreat to a low of 1.2285 and it was struggling to hold this level.
The latest IMM data recorded an increase in long Euro positions of over 4,500 in the latest week, pushing the long position to near 17,000 contracts. There will be a further threat of profit taking on long Euro positions in the short term.
There are still substantial underlying dollar risks due to the potential impact of high oil prices which could slow the US economy and deter a Fed tightening. If economic data next week is disappointing, there will be an increased risk of dollar selling as the market outlook is reassessed. Fed Chairman Greenspan's comments will be closely watched on Friday.
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