Recent EUR gains prove unsustainable, oil data in focus
December 29th - Yesterday’s rally by the Euro on the back of better than expected German consumer confidence figures has proved to be short lived, with attention yet again turning to US inflationary pressures as traders look for direction in what is proving to be a rather quiet week. With volumes down and liquidity a little thin, there’s a good chance that some of the movement we’re seeing will prove unsustainable in the longer term, but the bumper increase in US consumer confidence for December is keeping inflationary concerns very much alive at the Fed and the possibility of the hawkish stance over monetary policy lasting just that little bit longer is certainly going to continue providing support for the greenback. Steadying oil prices are also likely to lend additional support to the dollar for now, although details of the inventory data (due later today) plus speculation that OPEC may cut production quotas at the January meeting could lead crude back above the $60 mark. However, the critical issue here will be the impact such a move may have on the US trade balance and any suggestion that the gap can’t show some sign of contraction through 2006 could easily initiate another reversion of the greenback in due course.
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