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Euro vulnerable to profit taking 06-06-06 The Euro was unable to hold gains above 1.2970 level against the dollar on Monday and weakened in New York. There was evidence of important option-related dollar defence close to the 1.30 level and the unconvincing Euro attack encouraged profit taking on long Euro positions. The Euro-zone PMI index for the services sector rose to 58.7 in May from 58.3 the previous month, reinforcing confidence over the Euro-zone economy. Markets have, however, priced in a series of interest rate increases which will limit the scope for fresh Euro buying. Fed Chairman Bernanke stated that core inflation was running at the upper end of the acceptable range and that the central bank would be vigilant over inflation. Bernanke also stated that the economy was slowing, but the market’s initial reaction was to concentrate on the inflation comments. Futures markets pushed the chances of a June interest rate increase back to above 70%. The US ISM index for the services sector was close to expectations at 60.1 compared with 63.0 the previous month. The prices component strengthened over the month and there was a strong reading for the employment indicator while orders rose at a slower rate. The dollar will remain sensitive to individual data releases, although there is now little in the way of US data ahead of the Friday trade numbers. Tim Clayton Investica Ltd E-mail: tim.clayton@investica.co.uk Website: http://www.investica.co.uk 
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