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Forex outlook:
The dollar rebounded on Tuesday but remained near a record low against the euro as investors eyed central bank meetings this week in Europe which could keep overseas yields climbing. The dollar is trading around the levels of 1.3612 against the Euro, around the levels of 122.35 against the Yen and around the levels of 2.0175.
The dollar rose against a basket of six major currencies, steadying after two sessions of sharp falls. But the greenback hit another 26-year low against the British pound, which has been steadily gaining ahead of an expected rise in interest rates by the Bank of England on Thursday. "The dollar had a minor rebound against the Euro today but with the holiday today, trading now is very thin," said Matthew Strauss, a senior foreign exchange strategist at RBC Capital in Toronto. "Investors will wait until the central bank meetings and for the payrolls data on Friday to once again commit to larger positions."
The European Central Bank also meets Thursday, and is expected to keep rates on hold, but signal further monetary tightening is ahead. Volume dwindled in early afternoon in New York ahead of the Independence Day holiday on Wednesday, analysts said. Markets and government offices will reopen on Thursday.
Sterling on Tuesday hit a 26-year high versus the dollar at $2.0197 ahead of the BoE's policy meeting on Thursday. A quarter point rate rise by the BoE would take British rates to 5.75 percent, half a percentage point above the Federal Reserve's federal funds rate. Most analysts expect the Fed to leave interest rates on hold until late this year. "Interest rate and growth differentials continue to conspire against the dollar," said Michael Woolfolk, senior currency strategist at Bank of New York. "We're seeing an acknowledgment this week that the ECB and Bank of England are, if they are not going to be hiking rates, at least going to be sounding warning bells about hikes." In the thin trade ahead of the July 4 holiday the main focus on the economic front was an index of U.S. pending home sales, which slumped sharply in May to its lowest level since September 2001.
Investors will get a further handle on the state of the U.S. economy on Friday with the government's nonfarm payrolls report, the most closely watched barometer of the health of the labor market.
A solid reading could lure investors back to the dollar. "The US dollar's weakness seems to be largely a reflection of yet another bout of speculation that the Federal Reserve might sanction a rate cut later this year after all," analysts at Brown Brothers Harriman wrote in a note to clients. "We expect this too shall pass ... again."
Gold: Gold prices eased on Tuesday as investors took profits from a two-week high, but traders said the metal had potential to gain on security worries and any further decline in the dollar. A breach of important technical levels was also expected to accelerate the upward movement, but trading was likely to be subdued ahead of the U.S. Independence Day holiday on Wednesday, when financial markets there will be closed. Jonathan Jossen, an independent trader in New York, said from the COMEX floor that fund and trade buying with good volume was evident in the pit. He said institutional buyers should boost gold in the beginning of the third quarter because of the precious metal's lackluster gains in the first half of this year. Gold future contract is trading around the levels of 655.40$ per once.
Crude Oil: U.S. crude oil futures ended above $71 on Tuesday, after hitting 10-month highs, with gasoline lending support in pre-holiday trading. "The market's move up is physically driven, with the New York Harbor gasoline strengthening," said Antoine Halff, analyst at Fimat USA in New York. "On the crude side, a pickup in refiner demand is expected globally, not just in the United States," he added. Still, "the long-term charts are in bull mode, and the strong bullish seasonal tendency for the beginning of July will help keep crude oil positioned to continue higher," said Veronique Lashinski, Fimat technical analyst in Chicago. Crude Oil future contract is trading around the levels of 71.35$ per barrel.
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