Friday September 24, 2004 - 09:46:45 GMT
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INVESTICA Ltd - www.investica.co.uk
Oil prices in focus again
Yield considerations will remain important and the more aggressive Fed minutes will offer some dollar support. There will still be major uncertainties over the US economy's fourth-quarter direction. The dollar will remain very vulnerable if the forthcoming data is weak while high oil prices will also sap dollar strength. The Euro will still face tough resistance around the 1.2350 level and offers little immediate value beyond this level. Position adjustment should offer some dollar support ahead of the weekend.
The Euro strengthened to just beyond 1.2330, but it was unable to make a challenge on 1.2350 and the US currency pushed back to 1.2270 in New York with little change in early Europe on Friday.
The dollar was supported to some extent by the minutes from August's Fed meeting. The FOMC commented that the softness in the economy should be short lived and that it was also expecting a significant cumulative tightening. This raised interest rate expectations, but the meeting was six weeks ago and the forward-looking evidence will be crucial.
The leading indicators recorded a 0.3% decline for August, the third successive decline. Given the doubts over growth, oil prices will be monitored closely after a temporary rise to US$49 p/b in New York. There will be fresh concern that high oil prices will damage US growth and, unless there is a surge in inflation, there will be the potential for the Fed to halt interest rate increases.
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