Tuesday August 17, 2004 - 08:03:16 GMT
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INVESTICA Ltd - www.investica.co.uk
Oil still dominates yen
The easing of oil prices will provide immediate yen support, although underlying growth concerns will persist and underlying capital inflows into Japan are likely to remain subdued. The yen has the potential for a move to 109.8/110.0 but, given the Japanese uncertainties, the dollar should find short-term support here unless there is a fresh increase in risk aversion and a sharp decline on Wall Street. There is likely to be tough resistance on any dollar rallies back to 111.0.
The yen found good support at the 110.9 level against the US currency and the yen strengthened to 110.5 in New York on Monday. There was little change in early Europe on Tuesday, although with a slight yen strengthening bias.
Oil prices have remained a dominant factor for the yen and there has been a slight easing in prices due to relief over the Venezuelan presidential recall vote. Reduced fears of production disruption in Venezuela has helped lower prices, but prices are still above the US$45/p/b level and underlying market concerns will persist. These fears will continue to limit yen gains.
There will still be a reluctance to invest in Japan in the short term, particularly with doubts over Asian growth prospects. The key issue is whether the US dollar is in a position to benefit from Japanese doubts and the most likely outcome is that the US currency will be unable to do so due to underlying capital inflows into Japan.
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