Tuesday June 29, 2004 - 09:47:28 GMT
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INVESTICA Ltd - www.investica.co.uk
JAPAN: Tankan vital for yen
The yen will be hampered by the weaker than expected production figures, but wider optimism over the economy should remain intact unless the Thursday Tankan report is also significantly weaker than expected. The dollar recovery still looks corrective at this stage rather than a reversal and a medium-term move to 106.5 is still realistic. The yen should find immediate support below the 109.0 level, but caution will inevitably be a key short-term feature ahead of the Wednesday Fed decision.
The dollar found support above the 107.5 level on Monday and the US currency rallied back just above the 108.0 level in New York with the gains extending to 108.6 in Europe on Tuesday. There will be a reduction in short dollar positions ahead of the Fed decision, although there is no evidence of a massive short US currency position which should limit the dollar's correction potential.
The industrial production figures were weaker than expected with a 0.5% increase in May compared with expectations of a 2.5% increase. At this stage, the confidence in Japan's economy will continue, especially with optimism over the Tankan index on Thursday. Expectations for the figures and the economy are, however, high and the yen will, therefore, be vulnerable to a more sustained disappointment if the figure is disappointing.
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