Friday May 21, 2004 - 09:57:50 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar loses yen support
The yen will secure some interest from a rebound in the Nikkei and a tentative resumption of optimism over the Japanese economy. Intra-day volatility will remain high in the short term and the US currency will need to rally back through the 112.5 level to secure a more comfortable position. In the near-term the greater risk is for a dollar decline towards 111.5 and possibly 111.2.
The dollar peaked just below the 114.0 level against the yen and the dollar then retreated sharply in Asian trading on Friday. These losses continued in early Europe with the dollar dipping below the 112.0 level. The dollar was unable to secure a strong rebound and subsequently slipped back below 112.0.
The dollar decline through the 112.5 support level and the ease with which the yen pushed through this level will undermine near-term dollar sentiment and jeopardise the dollar's overall uptrend.
The Nikkei index strengthened by 2.0% on Friday with strength across most sectors while the IMF also suggested that its growth forecasts may be revised up. These factors combined will help revive interest in the Japanese economy and there will be some capital inflows. Volatility will, however, persist and longer-term uncertainties will continue, especially in view of oil price developments.
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