*Last Updated May 3, 2006, 1:16 am

Daily report by CMC Markets

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FOREX ANALYSIS

Dollar manages small rally but longer term outlook remains mixed

May 3rd - The dollar remains somewhat on the back foot as we approach the key ECB rate verdict due tomorrow. Traders remain split as to whether or not we’ll see any change to Eurozone monetary policy at this meeting but many will be watching the subsequent press conference with a keen eye and further volatility for EUR/USD is to be expected off the back of this. Over the last hour or so a small retracement has been initiated by the greenback, but at these levels the dollar is quite simply looking to be oversold even with the general confusion as to where US interest rates will go next. Ultimately the fact remains that the yield curves in Frankfurt and Washington are going to start to converge and unless the Fed can begin to reign in the yawning budget deficit, the dollar is likely to continue to struggle. Crude prices – a key factor in US imports – have started to back away from the attempt on $75 in recent trade but the longer term outlook remains uncertain. Today’s inventory news may of course provide some additional momentum here but with uncertainty still prevailing over the situation in Iran plus an number of other major producers, crude could easily continue to trend higher in the weeks ahead, again leaving the dollar with little room for manoeuvre.

Wayne Roworth and Enis Mehmet



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