Australian FOREX Daily Oulook 09/08/2005

09/08/05 (05:00 GMT)

• Dollar fell across the board before stabilizing with the closure of the U.S. embassy in Saudi Arabia due to threats leading to Oil prices inching towards another record high number of $64 pb. With current sentiment against the Greenback, the market is looking for any catalyst to push it lower but apart from these security threats, refinery concerns also persist and this would surely eat into the buying power of the global consumer. Dollar positive events have been priced in by the market with the Fed all set to raise interest rates today and Greenspan to remain optimistic and hawkish tone to be maintained.

• Euro remains well supported to try another stab at the 1.24 mark with data outcomes continuing on the strong side this coupled with Dollar’s weakness and solid real money demand for the Euro is giving more confidence to bulls to keep pushing higher. Earlier the Retail PMI data came above expectations across the zone with the result suggesting that it has gone back into expansionary territory. A sore point for the Euro right now which could boil over is the lack of any concrete signs of recovery in the Italian economy as seen in Germany and France. Skyrocketing oil prices have led to Italian Industrial production to decline more than expected while a higher Euro has its own set of problems.
  

• Yen fell across the board but managed to retrace some of its losses on the sheer relief of the Postal privatization bill finally out of the picture. It was rejected but the market had more or less started pricing in this eventuality from last week and Koizumi as he had threatened, called for general election on September 11. The Yen’s resilience is derived from the fact that Koizumi is not expected to lose and in fact could come back with an increased mandate and also have the flexibility to choose reform friendly members in his cabinet. Nonetheless at the end of the day it is a political gamble and one that would prevent the Yen from strengthening substantially till the result is known.

• Pound rallied strongly on the back of PPI increasing to its highest level in 20 years, this result was totally unexpected with the market getting caught off guard and positions were squared which were looking for another rate cut in the short term. Normally such a sharp jump in inflation would put a certain lid on any chances of a rate cut but it can’t be said with certainity at all, given the current conditions plaguing the U.K. economy. The BRC Retail sales survey reporting the worst July result in 10 years while house prices continue to decline. It is hoped that the recent rate cut would give fresh impetus for growth with BoE watching closely and they wouldn’t hesitate to cut rates again if sluggish conditions persists.
  

• Australian Dollar, in spite of its chances of further significant gains reduced by RBA’s dovish tone is being supported by Dollar’s weakness and healthy demand for its commodities. The concerning factor is slowing domestic demand with this morning’s business confidence index coming in below expectations while housing finance declined as well as further empahsizing growth is definitely slowing no matter how you look at it. Thursday’s employment data is eyed keenly to see if the labour market is cooling off.

EUR/USD – Yesterday’s low was 1.2314 and high was 1.2388.
The pair closed at 1.2363.

The pair’s scenario remains the same as it remains locked in range bound movements with its resilience to stay above 1.23 very impressive. While this strong support augurs well for a fresh uptrend but resistance is very strong within the 1.24 region with the size of offers intensifying between the 1.2450-1.25 region. Just like last year a clear break above 1.25 would accelerate its gains and would substantially minimize the chances of a Dollar comeback. The likely scenario is for the pair to remain locked in range bound movements with immediate support coming up in the 1.2280-95 zone with a break below to bring the technically mixed interest region of 1.2150-1.2260 with patchy moves likely within it. Very strong support and bid interest seen around 1.2150 and only a break below to shift the momentum back in the Dollar’s favour.

Key resistance is seen at 1.2395 followed by 1.2455 while support starts at 1.2290 followed by 1.2240.

USD/JPY – Yesterday’s low was 111.54 and high was 112.60.
The pair closed at 111.97.

The pair has now stabilized with political events out of the way for now but elections next month to prevent any significant gains for the Yen. It is likely to be locked within the 111-113 range for now with mild dollar bids continuing around 111.45 with a break below to bring into focus the very strong support region of 110.80-95 which should cap any gains for the Yen. Only a decisive break below risks acceleration of losses before the pivot mark of 109.90 to lend solid support. On the upside immediate resistance is seen around 112.55 with selling orders intensifying between the 112.75-113 zone. Japanese data is eyed for further direction.

Key Resistance is seen at 112.55 followed by 113.05 while support starts at 111.45 followed by 110.80.

GBP/USD – Yesterday’s low was 1.7726 and high was 1.7901.
The pair closed at 1.7855.

The pair after receiving a surprise boost from data ha s broken some more key resistance levels with next strong resistance mark at 1.7925 and it would be surprise if the Pound can decisively break past this mark. Mild support has now moved up to 1.7790 with a break below to bring into focus stronger support around the 1.7725 mark with decent bottom picking bid interest on any dips below the 1.77 mark. The likely scenario is for the pair to be range bound within the 1.77-1.79 range.

Key Resistance is seen at 1.7925 followed by 1.7955 while support starts at 1.7790 followed by 1.7725.

AUD/USD – Yesterday’s low was 0.7633 and high was 0.7684.
The pair closed at 0.7645.

The Australian Dollar should continue to be locked in narrow range bound movements as it has no factors technically or fundamentally to push it higher decisively from here on. 0.77 remains as the sell zone with offers intensifying on any break above 0.7755 and laced all the way up to 0.78. On the downside mild support continues around 0.7610 with a break below likely to accelerate losses towards 0.7555 which is a strong pivot mark and expected to lend the Aussie solid support.

Key Resistance is seen at 0.7695 followed by 0.7735 while support starts at 0.7605 followed by 0.7555

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