Australian FOREX Weekly Outlook 15/08/2005

15/08/05

Dollar’s losses intensified last week as key technical barriers were broken with the general thin market conditions usually seen this time of the year in the Northern American summer also playing its part in some of the exaggerated moves. But there is no doubt current sentiment and momentum has shifted away from the Greenback with commodity prices zooming higher as Oil prices are at their record high level of $67 pb while Gold prices went to their highest level in a year and are now sitting comfortably above $440.

Apart from other nation’s fundamentals improving, a few other factors have gone against the Greenback as it had started last week on weak note with a robust payrolls outcome failing to impress the market while threats to the U.S. embassy in Saudi Arabia acting as a catalyst to push oil prices higher which hasn’t look back since, while the Dollar hasn’t looked up. The market increased its short positioning after Retail Sales came below expectations as the extremely high oil price sensitive average American consumer is looking to cut costs elsewhere while the high import costs of oil has led to the Trade deficit going to its third largest result ever.

This has more than offset the recent optimism for the US. Economy which emanated from a robust labour & housing sector and healthy domestic demand. Thus the now familiar tri factor of political uncertainties, prospects of hurricanes as well as refinery problems keep pushing prices up and demand, well it refuses to cow down no matter what the prices are as Oil has become the basic necessity of the 21^st century and these high prices would have ramifications across the globe.

China also a heavy importer of Oil would be happy with its Yuan revaluation as it reduces its import costs and could be tempted to move quickly on another step in strengthening its currency if prices keep increasing. While Yen, which would appreciate by default, would also help the second highest importer of oil Japan, help reduce its import costs but at the same time exports could dry up further as global demand would stiffen. Thus it is very crucial that the recent pick up in domestic demand in Japan maintains itself and also that Koizumi gets reelected with an increased mandate in next month’s election.

There is no doubt that the Asia-Pacific region is the current flavor and its importance both in the economic and geo-political sense is increasing by the day. Commodity prices have increased while demand remains healthy which are keeping the Australian and New Zealand Dollar supported while Japanese and Chinese fundamentals are strong with outlook looking promising. The U.S. economy in spite of its structural problems has quite a few factors going in its favour with its yield advantage set to be substantial against the Euro by mid next year while it remains as the engine of global growth.

At the end of the day it is easier to get oil prices back in control than reverse the demographic problem of the ageing population in the Euro-Zone which as a region has had a history of disagreements. Any move into the 1.30 region would start the cyclical problems stemming from a stronger Euro all over again. But for the short term dollar remains under pressure with the Capital Inflow data on Monday likely to set the tone for the rest of the week.

FOREX USA

FOREX Euro-Zone

FOREX Japan

FOREX U.K.

EUR/USD – The pair’s support levels have moved up significantly as it looks to break the very strong pivot resistance mark of 1.25. Initial tests have failed but a bad result in the U.S. TIC’s data could help it break past this mark which would raise hopes of a fresh uptrend and make it very hard for the Dollar to reverse its losses. A clear decisive break above this mark brings mild resistance around 1.2555 followed by very strong resistance around the 1.2625 mark. Gains could accelerate on a break above this mark and Euro’s rally higher will gain added momentum. On the downside immediate support comes up at the 1.2350-65 region with a break below bringing into focus the 1.2240-1.2350 region which has mixed technical interest with no clear bias, patchy moves are likely within it. A break below could accelerate losses towards 1.2175 which holds strong support and the momentum could shift in the Dollar’s favour if a clear break below is achieved.

USD/JPY – The pair’s impressive reversal on fundamental factors has added a bullish feel for the Yen with resistance levels for the pair moving down significantly. Support region at 108.55-70 is strong with a break below to send this pair to its lowest level in two months and could accelerate its losses with next distant support seen around the 107.75 mark. Below this down to the 1006.85 mark mixed interest with no clear technical bias exists but any moves below it, sets the Yen up for fresh uptrend. On the upside, immediate support has moved down to the 110.10-25 region with mixed interest above it till the 111 region with next strong resistance coming up in the 111.50-70 region while a break above 112 to shift the pair back in neutral territory.

GBP/USD – The pair’s gains last week were much higher than anticipated as it broke key resistance barriers which accelerated its gains after pivot marks of 1.7815 and1.7955 gave way. The 1.8050-1.8190 region holds mixed technical interest with mild resistance within the 1.8220-35 region, a clear and decisive break above brings into focus very strong resistance in the 1.8300-25 region which had held well from May to July and should continue to pose as a major barrier. A break above would send it towards its 4 month highs and would raise hopes for a fresh uptrend and significantly reduce the Dollar’s chances to pare back its losses. On downside, mild support has moved up to the 1.8015 mark with a break below to bring into focus very strong support around 1.7955. This pair is prone to exaggerated movements with mixed technical interest down to 1.7810 where very strong support should come up and any foray into the 1.77 region would shift the pair back in neutral territory.

AUD/USD – The Australian Dollar has found good support from high commodity prices but 0.7755-0.78 remains as the very strong region to break above as it is laced with strong offers. It hasn’t broken above this mark for 3 months now and only a clear and decisive break higher raises hopes of a fresh uptrend otherwise it should remain locked in narrow range bound movements. 0.80 of course remains as the crucial historical barrier for this pair and is expected to cap any gains. On the downside immediate support comes up around 0.7660 with a break below bringing into focus the technically mixed interest region of 0.7575-0.7650 followed by very strong pivot support mark of 0.7555 with a break below to shift the pair back in neutral territory.

Kunal Sharma

Easy Forex Pty Ltd. (Australia)
E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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