Wednesday September 8, 2004 - 09:34:10 GMT
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INVESTICA Ltd - www.investica.co.uk
Forex: US spending doubts will continue
Greenspan's comments are likely to be generally positive on the US economy and September US rate hike expectations should remain intact. The US currency will still face tough resistance on any moves towards 1.20, especially with some doubts over spending trends. Weak comments from Greenspan are unlikely, but would push the US currency to at least 1.2150. Although the US currency should remain firm, the Euro offers good medium-term value close to the 1.20 level.
The dollar found support at the 1.2110 level against the Euro and the US currency strengthened to 1.2060, but overall moves lacked conviction and the dollar was holding around 1.2080 in early Europe on Wednesday.
Fed Governor McTeer was hopeful that the US economy was recovering from the soft patch. The market focus will switch to the comments from Fed Chairman Greenspan today. The most likely outcome is that Greenspan will also be optimistic over the economy and point to a September interest rate hike. This should underpin the dollar, but it will be difficult to secure strong buying interest as a rate increase has been priced in. Greenspan will also discuss US fiscal prospects and he is likely to warn over budget trends which would tend to undermine the dollar slightly.
There will also be some concerns over the UCLA forecast which warned that the US economy is vulnerable to a slowdown in consumer spending and that the soft patch is likely to be prolonged.
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