Tuesday January 11, 2005 - 11:16:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar selling on rallies
The portfolio flows into Japan are likely to continue in the short term and this will offer underlying yen support. Strong gains are likely to be deterred by disappointing domestic economic data and caution over Bank of Japan intervention if the dollar weakens rapidly towards the 102.0 level. Overall, there should still strong dollar resistance on any recoveries to near 105.0.
The dollar was unable to make fresh headway against the yen and the US currency weakened to a low of 103.8 in early Europe on Tuesday before recovering back to 104.0. The yen remained firm against the Euro, but was unable to sustain a move through 136.5.
The Nikkei index remained firm with a 0.9% increase on Tuesday, pushing the Japanese market to a six-month high. There is the potential for further equity inflows in the short term on regional equity demand and this will also offer underlying yen support.
The Japanese leading indicators were disappointing with the index remaining below the pivotal 50.0 level, although there was an improvement to 30.0 in November from 18.2 in October. The doubts over Japan's economy will continue to act as a barrier to strong yen gains, especially if there is a sustained decline in semiconductor prices.
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