Australian FOREX Weekly Outlook 12/09/2005

Dollar managed to stabilize last week with the market getting some more time to digest the aftermath of the costliest disaster to have ever hit the U.S. Most currencies’ rally against the Greenback had been exaggerated and after a slow start, once signs of normalization to proceedings and relief operations got under way, profit taking on Dollar shorts was the main theme of last week. Most traders are adopting a neutral position ahead of a barrage of key U.S. data releases this week.

Incumbent Japanese Prime Minister Koizumi has been re-elected with a landslide margin this solid result now clears the way for an easy passage of the Postal privatization bill in the parliament. And once that is out of the way more reform bills are likely to be tabled, and given the size of his majority, they are very likely to be passed easily. The gamble of calling for a snap poll has worked out perfectly for Koizumi as he has shown his political opponents some within his own party of where exactly the public’s support lies. With the general consensus that impact of the hurricane on oil prices has been exaggerated and prices easing back slightly this coupled with improving domestic demand is adding to the optimism for the Japanese economy in the last quarter.

Unlike Koizumi, German Chancellor Schroeder’s decision to call for polls, which would take place on Sunday, might not have the same effect. Latest opinion polls show no clear winner with opposition leader Angela Merkel might not have enough seats to from a coalition government. She has the reputation of being much more reform friendly than Schroeder, who in recent times has seen discontent over his economic polices increased markedly with unemployment in erstwhile East Germany a staggering 19%.

Political factors will keep the Euro under pressure throughout the week, unless U.S. data is exceptionally weak, but there are no doubts that the recent solid data results in Germany point towards a steady recovery in the economy. This improvement has come about as much from a weaker Euro boosting exports but also the realization and subsequent implementation of German corporations’ assertion to cut their profit margins. In the current environment of cut throat global competition and previously low costs manufacturing sectors like China now moving into the market of luxury items, it has made it imperative for German companies to face the new ground realities and offer competing prices. However, this recovery is now threatened by the Euro inching higher again and Oil prices staying above $60 pb.

A clear winner of the past week has been the Commodity bloc with the Australian, Canadian as well as the New Zealand Dollar making significant gains. The Aussie especially was buoyed by robust data with GDP rising on the back of healthy export demand from Asia while employment gained way above expectations. Doubts in regards to U.S. interest rates are also making the Aussie’s high yield advantage stand out. However while fundamentally it should rally further, it faces strong offers above current levels and growth will threatened if it goes past 80 cents with exports sure to decline. The same applies for the Canadian with 1.16 and the New Zealand with 0.7350 as the crucial levels that might cause a few headaches for their respective Central Banks.

Key U.S. data this week is expected to be on the weak side but any upside surprises in the outcome will help the Dollar rally as the market would be looking for excuses for further profit taking especially on the Euro and the Pound which had benefited by default immediately after the hurricane.

Forex USA

Forex Euro-Zone

Forex Japan

Forex U.K

FOREX (Foreign Exchange) Key Weekly Pivot levels

EUR/USD – The pair’s massive rally in the week before last led to exhaustion and a bout of profit taking ensued. It is currently lying within the technically mixed interest region of 1.2350-1.2460 and U.S. data outcomes will provide further clues for a breakout but for now immediate support continues in the 1.2305-20 region with a clear break below likely to accelerate losses but mild bids lie just below 1.23 but a clear break would shift the pair in neutral territory. Key pivot points include 1.2275 and 1.2230 which are expected to provide a bit of support but clearance of these marks would shift the sentiment back in the Dollar’s favour and clear the way for further gains. On the upside, immediate resistance comes up at 1.2460 with a break above will lead to stiffened movements as offers lie around with heavy offers above 1.25 and strong resistance around 1.2515. Key pivot points above it include 1.2545 and 1.2580 with only a clear and decisive break above 1.26 raising hopes of fresh uptrend towards 1.30.


USD/JPY – The pair has gone back into its 109-111 range after a brief breakout and conflicting factors are leading to stiffened movements. Immediate support continues in the 108.90-109.05 region which holds decent bid interest and strong bids are lined up to the 108.50 mark which holds very strong support and has held well for 3 months now. Only a clear break below raises hopes of a fresh rally by the Yen and could accelerate its gains with distant support seen around 107.35. On the upside, mild resistance continues around 110.45 followed by the very strong resistance zone of 111.05-20 where decent selling orders lie. A decisive break above would shift the momentum in the Dollar’s favour.


GBP/USD –The pair continues to ease back after its massive rally the week before last with mild bottom picking bid interest lying just under 1.83 which is followed by decent support around the 1.8240 mark. A break below this mark will shift the pair into neutral territory &amp lead to mixed technical interest with no clear bias down till the 1.8110 mark which holds strong support and decent bids around it. Mild bids continue to be lined within the 1.80 region with another strong support mark at 1.8025 a break of which will shift the momentum in the Dollar’s favour and could accelerate its gains. On the upside, immediate resistance continues around 1.8440 with decent offers lined above it which increase in strength on a break above 1.85 with very strong resistance around 1.8515. Only a decisive break above the 1.86 mark raises hopes of a fresh uptrend for the Pound.

AUD/USD – The Australian Dollarrose significantly on the back of strong fundamentals but strong offers continues within the 0.77 region especially above 0.7750 which is immediate resistance level. Only a decisive break above 0.78 mark raises hopes of a fresh uptrend towards 0.80 otherwise it is likely to slip back into range trading mode. On the downside immediate support lies around 0.7690 with mild bid interest seen on dips below 0.7675. A clear break below brings into focus the pivot mark of 0.7610 which holds strong support. The pair would shift back in neutral territory if it breaks the bids lying below 0.76 and clears the 0.7555 support mark.

Kunal Sharma

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

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