Wednesday September 29, 2004 - 09:55:51 GMT
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INVESTICA Ltd - www.investica.co.uk
Defensive qualities support Euro
Oil prices are likely to dominate for now and there will be further concerns that the US economy will slow. The dollar's weak bounce from 1.2350 also suggests some vulnerability. The net risks are slightly dollar negative with investors preferring the safety of the Euro while this uncertainty persists. There will still be tough resistance around the 1.2350 level, but a Euro move through this level would undermine medium-term dollar confidence.
The Euro was again unable to push through 1.2350 and the dollar recovered back to 1.2310 with little change in early Europe on Wednesday. The US currency's bounce from 1.2350 was, however, weaker than previously which will be a warning sign for the dollar.
The US consumer confidence data was slightly weaker than expected with a decline to 96.8 in September and there will also be some concern that the weak employment component could signal a disappointing employment report for September. High oil prices will remain an important short-term focus with prices still close to US$50 p/b. The net risks are likely to be slightly negative for the US currency due to speculation that the US economy will be damaged.
US Treasury Secretary Snow has stated his confidence that there will not be a sharp slowdown in the US economy, but uncertainties over growth will continue and US Treasury yields have remained below 4.0%. In this environment, demand for high-yield currencies will continue.
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