Friday June 18, 2004 - 09:32:16 GMT
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INVESTICA Ltd - www.investica.co.uk
Euro selling boosts yen
There is still the potential for long-term yen gains due to capital inflows and confidence over the economy. The Japanese currency is likely to face tough near-term resistance around the 109.0 level and will probably fail to break through. Dollar rallies will struggle to push above 110.0. A period of narrow range trading could eventually lead to a sharp breakout with the risks slightly in favour of yen gains.
The dollar dipped sharply to 109.0 during trading on Thursday, but the US currency survived a test of support and it pushed back to the 109.5 level. The yen has been boosted by buying against the Euro, but trading ranges are narrowing due to longer-term uncertainty.
The Nikkei index retreated by 1.95% on Friday due to a decline in technology stocks and the retreat will curb near-term yen strength, especially as there will still be a correlation between the Nikkei index and the yen. There is still the potential for underlying capital inflows which will be yen supportive on a longer-term perspective.
Market sentiment on the dollar is still relatively firm and this will make it difficult for the yen to make strong ground in the short term, especially as there is still some speculation that the US currency could push above the 112.0 level. The dollar will, therefore, be more exposed if sentiment on the US currency turns again.
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