Tuesday September 28, 2004 - 10:12:21 GMT
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INVESTICA Ltd - www.investica.co.uk
Oil dominates trading
High oil prices and Nikkei vulnerability will continue to undermine the yen in the short term. The potential yen damage will increase if high oil prices are sustained. If the rumours of BOJ dollar support are true, there will also be a much-improved chance of a dollar move to at least 112.0, but the bank is likely to be very cautious and there is still little merit in dollar buying at these levels.
The dollar pushed above the 111.0 level during Monday, strengthening to a high of 111.4, and the US currency made a further advance in early Europe on Tuesday to a high of 111.6.
The level of oil prices will remain a very important trading factor with further concern that the Japanese economy will be damaged by prices above the US$50 p/b level. There are also growing fears that the tankan index will be weaker than expected on Friday.
The Nikkei index has remained on the defensive with a 0.4% decline on Tuesday to a six-week low. The damage will be much greater if prices remain at this level over the next few weeks.
There was speculation over Bank of Japan action to weaken the yen during Monday. If the bank has intervened this will be a very important development, especially as it would signal official concern over the Japanese economy. Intervention would also be a surprise, especially as it would risk tensions with the US at the weekend G7 meeting.
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