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Saturday, May 19, 2007

Euro Outlook (18th May 2007)

Into North American trading and EUR/USD finds itself close to the 1.3465 low from May 10th & 11th. Spot was forced lower amid the late European morning sell-off that was induced by the late PBOC statement that they were widening their USD/CNY trading band, hiking rates and raising their minimum reserve requirements.

The band was increased from 0.3% to 0.5% to "increase flexibility in the Yuan FX rates" according to the PBOC statement. Dealers now expect the weekend G8 meeting to endorse the move but there is scope for some to call for more to be done as global imbalances continue to require moderation. Bids in EUR/USD are said to trail back to the 1.3450/55 area with central bank and option related buyers noted ahead of the 1.3450 structures.

On the topside, only a break above 1.3500/10 will see follow-through generated with stops still tipped to reside above 1.3510 and again above 1.3550. US data today comes in the form of 14:00 GMT Michigan Sentiment data and the 14:30 GMT weekly ECRI release while comments from Moskow are expected from Chicago around 16:45 GMT. Then the attention then turns back to Potsdam.

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