Friday August 27, 2004 - 10:00:52 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen survives disappointing data
Equity gains will offer near-term support for the Japanese currency and the yen has avoided selling pressure on disappointing economic data which will dampen dollar sentiment. If the yen can strengthen through 109.0, there will be the risk of a decline to at least 108.5, although the more likely outcome is that 109.0 dollar support will hold. The US currency is likely to face tough resistance at the 110.0 level.
The dollar hit tough resistance above the 110.2 level and it weakened to a low of 109.2 in early Europe on Friday before recovering to 109.5.
The Japanese economic data was disappointing with the unemployment rate recording a surprise rise to 4.9% in July from 4.6%. There was also an underlying 0.2% decline in consumer prices for July while the household spending figures were also disappointing. The unemployment rate was boosted by people returning to the labour market which to some extent is an indication of economic strength, but doubts will persist over the next few weeks with fears over a slowdown.
The Nikkei index has remained firm with a 0.68% increase on Friday and there will be further yen support from lower oil prices. It will still be difficult for the dollar and yen to break out of existing ranges. The dollar will also gain support from central bank buying of US Treasuries by Asian central banks. Buying amounted to US$5.5bn in the latest week.
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