Flu Epidemic Would Strengthen Yen

There is likely to be slightly great caution towards risk appetite in the short term and this will tend to provide some degree of yen support. Any increase in fears over the swine flu situation would also tend to support the Japanese currency. The yen will struggle to gain strong support with rallies still likely to attract selling pressure, especially with the launch of Japanese funds targeting overseas bonds. The net risks look to be for further limited dollar losses towards 96.20 and possibly 95.80 where there should be strong dollar buying support.

The US currency found support close to 96.60 on Friday and edged higher in New York as risk appetite was still generally firmer with demand for the dollar and yen both weaker on hopes for stabilisation in the international economy

Confidence in global markets was slightly weaker on Monday with fears that any swine flu epidemic would result in further damage to global trade and regional business conditions. There was also wider uncertainty over the potential global growth outlook. In this environment, there was caution over equity markets and a more defensive tone in markets which curbed selling pressure on the Japanese currency. An escalation in fear over the flu situation would provide significant yen support.

The yen briefly strengthened to a four-week high against the dollar and the yen regained some ground on the crosses, but there was US currency support near the 96.50 region against the yen.

Investica
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