Wednesday January 5, 2005 - 11:22:54 GMT
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INVESTICA Ltd - www.investica.co.uk
Forex: Yen support at 105.0?
The sharp dollar correction will discourage near-term yen buying, but the US currency is still likely to hit tough selling pressure around the 105.0 level, especially as exporter selling will increase. The underlying capital flows should remain yen positive, but will probably not justify rapid yen gains and there will be strong dollar support on any fresh selling down to 102.5.
The dollar pushed above the 104.0 level as the US currency secured a widespread correction. The dollar extended gains to a high of 104.8 before a retreat back to 104.5, but the dollar then made a challenge on 105.0. The yen remained stronger than 140.0 against the Euro. The sharp dollar gains will deter near-term selling pressure, but the US currency will find it more difficult to secure strong buying interest.
There will be concerns that the Asian economy could slow later in 2005, especially if the electronics sector weakens, and this may curb the momentum towards stronger Asian currencies, but the flows over the next few weeks should still be supportive of the yen.
There has been no sign of Chinese actions to let the yuan appreciate at the current central bank meeting. If this position is sustained, the yen could be weakened slightly, although a substantial impact is unlikely as medium-term speculation will continue.
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