Monday June 27, 2005 - 09:37:06 GMT
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INVESTICA Ltd - www.investica.co.uk
Conflicting yen pressures
The dollar edged stronger against the yen during Friday, but trading was indecisive. The high level of oil prices will tend to undermine the Japanese currency in the short term and the yen was holding weaker than 109.0 in early Europe on Monday despite a generally weaker US dollar tone.
Principal interest will tend to focus on the level of oil prices in the short term. High prices will remain damaging for the Japanese currency and the Nikkei index weakened on Monday. If, however, there is a major increase in risk aversion on the back of rising energy prices, there would be the risk of buying pressure on the yen that would neutralise the potential selling pressure.
There were no major significant China developments at the ASEM economic summit. China's central bank is still stating that it needs more time to prepared for a yuan adjustment while Premier Wen also rejected an immediate move to let the yuan strengthen stating that Beijing would set its own timetable on reform. This combination will dampen speculation over a near-term move to revalue the yuan. Underlying speculation will, however, continue and this will continue to discourage aggressive yen selling. Wen, for example, also reiterated that China's long term goal remains a market-based, well managed and floating exchange rate system and, in this context, minor moves could be sanctioned at any time.
The latest IMM positioning data recorded a decline in short yen positions of over 14,000 contracts in the latest week, but the net short position was still around 38,000 contracts. This will maintain the risk of a covering of short yen positions.
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