Tuesday November 23, 2004 - 10:59:54 GMT
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INVESTICA Ltd - www.investica.co.uk
Limited dollar recovery
There will be persistent speculation over Asian currency gains which will offer strong yen backing. There will be near-term caution over the potential for Bank of Japan intervention, especially as the authorities may take advantage of a dollar correction to push the yen even weaker. Overall, there is the potential for a move back towards 104.2 and possibly 105.0 despite the medium-term potential for renewed dollar losses and a yen move to at least 100.0 against the US currency.
The dollar found support below the 103.0 level and rallied slightly to 103.3 in early Europe on Tuesday before a further advance to 103.6. Activity in Japan was lessened by the market holiday in Tokyo.
Japanese finance official Watanabe stepped up his verbal efforts to restrain the yen by stating that it was time to think of intervention after strong yen gains over the past 7 days. There is likely to be near-term Finance Ministry opposition to yen gains through the 102.5 level. The authorities may seek to extend the current correction through modest intervention.
The Chinese stance on exchange rates will remain very important. There is also likely to be increasing capital flows into Asia on speculation over regional capital inflows and this should offer underlying yen support. Regional currency gains would also lessen resistance to yen gains as export competitiveness fears would ease. A move by China is still an essential medium-term factor to watch.
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