Wednesday November 17, 2004 - 10:55:48 GMT
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INVESTICA Ltd - www.investica.co.uk
Further dollar losses likely
Underlying dollar sentiment will remain weak and there will also be a general flow of funds into Asian currencies on speculation over a Chinese yuan revaluation. There has been no evidence of Bank of Japan intervention so far and this will increase the risk of a dollar decline to 103.5 in the short term as dollar selling increases. There is the potential for a significant correction from around 103.5, especially as some official displeasure is likely to at least slow aggressive US currency selling.
The dollar was stuck in a narrow range against the yen during Tuesday as it found support at 105.2, but failed to rally above the 105.6 level and was stuck close to 105.3 in early Europe on Wednesday. The dollar subsequently weakened to below the 105.0 level and dipped to a low of 104.65.
There have not been any major comments on the US currency by Japanese officials and this will heighten speculation that the authorities will not intervene close to the 105.0 level. The markets will still be careful over selling the US currency aggressively, but the break of 105.0 will risk accelerating selling pressure. There will be further speculation over a Chinese yuan revaluation and this will maintain a flow of funds into the region.
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