Australian FOREX Daily Oulook 16/08/2005

16/08/05 (00:00 GMT)

• Dollar retraced some of its losses thanks to a robust outcome in the Foreign Capital inflows data. Central Banks from around the world might be restructuring their Dollar holdings but the current strong footing of the U.S. economy is attracting enough foreign investors to make up for its huge deficits. This impressive result is likely to be pre cursor of things to come, as the rise was led by purchases of Corporate Bonds as high U.S. interest rates substantially increase the attractiveness of these bonds with the U.S.’s yield set to be twice as much as the Euro-Zone in a few months.
  

• Euro has eased back towards 1.2350 as apart from strong U.S. data, its failure to break past the crucial 1.25 mark last week also weighed in against it, as another bout of mild profit taking ensued. Holiday in French and Italian markets led to thin trading conditions and with no key economic releases till late in the week, direction is derived from U.S. data. Earlier Germany’s Central bank Bundesbank stated that general weak economic growth in the zone, rather than discrepancy in growth rates are the likely reasons for discontent with development in the zone. These comments are coming in the current environment where pick up from general sluggish conditions are so far only seen in wealthy west European member states.

• Yen remains well bid as data continues to confirm the renewed optimism for the economy while support also emanates from the market’s assertion that Koizumi would be comfortably reelected. Earlier Department store sales witnessed its strongest pace of growth in more than 3 years as domestic demand continues to project a strong recovery which is especially crucial in the current environment for the export dependant Japanese economy as record high oil prices would eat into global demand for durable goods.

• Pound followed the Euro in paring back some its gains but it continues to benefit from the positives stemming in last week’s Inflation report suggesting that there wouldn’t be any aggressive rate cuts. With BoE to gauge future action on the strength of the data outcomes, the focus shifts to this week’s house price, inflation, employment and retail sales data. However no significant pick up is expected in any of these sectors as they have stabilized for now and it remains to be seen if consumer spending can pick up and house prices stop declining.

• Australian Dollar has slipped back below 0.77 not only due to the general mild rebound by the Greenback and profit taking on key commodities but also due to increasing doubts on its growth prospects for the rest of the year. Apart from the obvious disadvantage of its yield advantage shrinking fast, weak domestic conditions led by the housing market and mixed consumer spending also have the potential to severely sour support for the Aussie.

EUR/USD – Yesterday’s low was 1.2345 and high was 1.2464.
The pair closed at 1.2362.

The pair has eased back as U.S. data remained firm which led to another mild bout of profit taking, it still needs to decisively break the wall at 1.25 which could start a fresh uptrend but it has to clear the strong offers around that mark. For now the pair is hovering around the 1.2360 mild resistance mark with a clear break below to lead to mixed technical interest with no clear bias till the 1.2240-55 region which has strong support. A break would shift the pair back in neutral territory with distant support seen around 1.2175. On the upside, immediate resistance lies around 1.2550 followed by the continuation of very strong resistance around 1.25.

Key resistance is seen at 1.2450 followed by 1.2505 while support starts at 1.2360 followed by 1.2240.

USD/JPY – Yesterday’s low was 109.20 and high was 109.81.
The pair closed at 109.37.

The pair remains locked in narrow range bound movements with mild bid tone for the Yen and resistance levels for the pair having moved down significantly around 110.15 with a break above to bring into focus very strong resistance around the 110.65 mark which is expected to cap any Dollar rally with only a break above 111 to shift the pair back in neutral territory. Immediate support comes up in the 108.70-85 region with a clear break below to accelerate losses for this pair which could only provide distant support around the 108 mark with bottom picking bid interest. This would also shift the Dollar in deep negative territory and reduce chances of its comeback

Key Resistance is seen at 110.15 followed by 110.65 while support starts at 108.70 followed by 108.05.

GBP/USD – Yesterday’s low was 1.8071 and high was 1.8160.
The pair closed at 1.8093.

The pair is buoyed after breaking key resistance barriers and for now lies within the technically mixed interest region of 1.8075-1.8190 which has no clear bias. Some profit taking could ensue on a break above 1.82 which could stiffen gains with strong resistance around 1.8225. On the downside support comes up at 1.8045 with a break below likely to accelerate losses below 1.80 before strong support should come up in the 1.7970-85 with bottom picking bid interest around that region. A clear break above 1.8225-40 zone should lead to very strong resistance around 1.83 which should cap any Pound gains.

Key Resistance is seen at 1.8225 followed by 1.8295 while support starts at 1.8045 followed by 1.7985.

AUD/USD – Yesterday’s low was 0.7672 and high was 0.7738.
The pair closed at 0.7681.

The Australian Dollar is failing to break above the crucial 0.7755 mark as very strong offers are laced up till the 0.78 region. Only a break above this mark raises hopes of a fresh uptrend other wise the pair is likely to be locked in narrow range bound movements or risks losses. On the downside immediate support has moved up to the 0.7645 mark with a break below bringing decent support and bid interest around 0.76 with any moves lower to shift the pair back in neutral territory.

Key Resistance is seen at 0.7755 followed by 0.7790 while support starts at 0.7645 followed by 0.7605

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