The dollar temporarily strengthened through the 1.18 level against the Euro on Friday, but was unable to hold the gains and the US currency weakened… … back to 1.19 in Asian trading on Tuesday before holding around 1.1875.

The Fed minutes from the December
FOMC meeting, due for release on Tuesday, will also be very important for
interest rate expectations and the US currency with markets looking for further
evidence on the Fed’s first-quarter policy intentions. The combination of Fed
minutes and payroll report will tend to set the dollar tone for January as a
whole. The dollar will gain initial support if there is a relatively tough
stance by the Fed in the minutes, although the US currency will find it more
difficult to secure strong sustained interest given speculation that the rate
cycle is close to completion.

Markets will also remain on alert
for ECB interest rate comments following recent suggestions that the bank will
look to increase interest rates again early in 2006. The reports suggest that
there was a further decline in seasonally-adjusted unemployment for December of
close to 100,000 while the PMI index for the Euro-zone edged stronger to 53.6 in
December from 52.8 in November, maintaining the run of firm Euro-zone
data.

The latest IMM positioning recorded
a small net long Euro position, but the overall impact should not be substantial
in the short term with longer-term positioning and investment trends more
important early in the year.

Fed to set dollar direction –
03-01-06

The dollar temporarily strengthened
through the 1.18 level against the Euro on Friday, but was unable to hold the
gains and the US currency weakened back to 1.19 in Asian trading on Tuesday
before holding around 1.1875.

The Fed minutes from the December
FOMC meeting, due for release on Tuesday, will also be very important for
interest rate expectations and the US currency with markets looking for further
evidence on the Fed’s first-quarter policy intentions. The combination of Fed
minutes and payroll report will tend to set the dollar tone for January as a
whole. The dollar will gain initial support if there is a relatively tough
stance by the Fed in the minutes, although the US currency will find it more
difficult to secure strong sustained interest given speculation that the rate
cycle is close to completion.

Markets will also remain on alert
for ECB interest rate comments following recent suggestions that the bank will
look to increase interest rates again early in 2006. The reports suggest that
there was a further decline in seasonally-adjusted unemployment for December of
close to 100,000 while the PMI index for the Euro-zone edged stronger to 53.6 in
December from 52.8 in November, maintaining the run of firm Euro-zone
data.

The latest IMM positioning recorded
a small net long Euro position, but the overall impact should not be substantial
in the short term with longer-term positioning and investment trends more
important early in the year.

www.investica.co.uk