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Forex outlook:
The dollar edged higher against the euro on Monday, recovering from a record low, as dealers awaited economic data later in the week to see if U.S. credit market turmoil has spread to other sectors. Short-term investors closed their bets against the greenback after the euro failed to sustain gains beyond record highs near $1.3850, allowing the dollar to stabilize near 12-year lows against a basket of major currencies. "We've had an enormous rally in currencies against the dollar and at some point in time people want to take some money off the table," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York. "But bearish sentiment on the dollar is still the strongest I've seen in some time, and any good dips in the euro are probably going to be seen as opportunities to buy again."
Sterling rose to a 26-year high versus the dollar above $2.06, before paring those gains to trade only slightly up on the day at $2.0575. Many analysts and dealers have said they expect more dollars selling in the days ahead before a sustained rebound. The U.S. currency is coming off five consecutive weeks of declines, mostly on fears of widespread fallout from the U.S. subprime mortgage crisis. Jitters about U.S. housing and credit sentiment are likely to remain dominant. June U.S. existing home sales are due on Wednesday and new home sales data are due on Thursday. The market will also get its first look at second-quarter U.S. gross domestic product growth on Friday.
The New Zealand dollar surged above $0.80 yesterday for the first time since the currency was floated in 1985, strengthening to a high of $0.8058 and gaining almost one percent on the day. The Reserve Bank of New Zealand is expected later this week to continue raising rates, which are already among the highest in industrialized countries.
Gold: U.S. gold futures finished slightly lower on Monday, as the precious metals market took a breather from last week's rally, but a weakened dollar and more bullish sentiment limited losses. Bullion's recent rise prompted investors to increase holdings in StreetTRACKS Gold Shares, the world's largest gold exchange-traded funds (ETF) by far, to a near-record level. Changes in gold and silver ETF holdings are closely watched by market participants because sharp inflows in gold ETFs could be a bullish signal as they show longer-term retail investors are entering the market.
Crude Oil: U.S. crude oil futures fell on Monday amid profit taking after OPEC's president voiced concern about high oil prices affecting the global economy and a government report Friday revealed speculators trimmed net long positions. "The immediate weakness yesterday in the market could possibly be because of the OPEC president saying that the cartel is concerned about the potential impact of high oil prices on the global economies," said Nauman Barakat, senior vice president at Macquarie Futures USA. The Organization of the Petroleum Exporting Countries is concerned about the effect of the near-record price of oil on the world's economy, but it has seen little sign that growth has been hurt by higher energy costs, OPEC President Mohammed al-Hamli said.
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