Australian FOREX Daily Outlook 6/12/2005

MARKET SUMMARY – 06/12/05(03.00GMT)

• The Dollar weakened against the major currencies overnight due to market positioning and technically driven trade. Data released overnight had little impact on the dollar. The US ISM services index of business activity eased from 60.0 to 58.5 in November but readings for new orders and employment rose in the month. Economists had expected the ISM index to ease to 59.0. Any reading above 50.0 indicates expansion in the services sector. In the States later today sees the release of factory orders. Given the sharp rebound in durable goods orders reported in the past week means that the gain in factory orders should also be impressive, now forecast to be up about 2.5% in October.
  

• The Euro strengthened from 1.1687 to 1.1818, before closing at 1.1795 in the New York session. The market was positioned short Euro and stop losses were triggered above 1.1780. The Eurozone services PMI rose to 55.2 in November from 54.9 in October. The French and German PMIs both fell moderately, while the Italian index rose. Also in the Eurozone, retail trade rose 0.5% in October, in line with expectations, However, downward revisions to previous months meant that annual growth rose 0.4%, compared to the expected 1.0%
  

• The Japanese yen rose from JPY121.37 per US dollar to JPY120.71 before closing the New York session at JPY120.85. Earlier in the session the Japanese yen fell to record lows against the Euro, 32-month lows against the dollar and 8-year lows against the Aussie and Kiwi. This is in sharp contrast to the Nikkei which rose to five year highs following stronger Q3 MOF corporate profits survey.

• The Pound rallies against the dollar from 1.7274 to 1.7430 before closing at 1.7410 in the New York session. In the UK, the services PMI fell to 55.8 from 56.1 in October. Chancellor for the Exchequer Gordon Brown delivered his annual pre-budget report. Economic growth forecast were revised down markedly. In the current year, the economy is expected to grow by 1.75%, down from the earlier forecast of 3.5%. Next year the economy is expected to grow between 2% to 2.5%.
  

• The Aussie dollar traded up from 0.7452 to a high of 0.7526 before closing the New York session at 0.7510. The trade deficit was released today and totaled a seasonally adjusted $1.33 billion in October, in line with market expectations and down from $1.56 billion in September, revised down from the originally reported $1.62 billion.

TECHNICAL COMMENTARY

• Euro – 1.1780

Euro continues to trade in a volatile 1.1650 to 1.1850 range. The lack of follow-through on both ends has the market perplexed. A decisive break of 1.1680 would signal a test of the downside towards 1.1586, the 38.2% retracement of the broad 0.8227 to 0.3663 advance. A decisive break of the congestion zone at 1.1903 (Oct 3 low) to 1.1907 (50% retracement of 1.2170 to 1.1644) is required to put doubt in the ability of the short-term bear trend’s ability to eventually post a new trend low.

• Yen – 120.90

The dominant technical theme remains bullish, with a break to new highs maintaining the up-trend pattern of higher highs and higher lows. Accordingly, the market is looking for further gains towards 121.89, a reactionary high from Mar 31, 2003, en route to 122.38, the 61.8% retracement of the Jan ’02 to Jan ’05, 135.18 to 101.67 decline. The markets bullish bias remains with weakness beneath Nov 28’s formerly resistant 119.95 level required to threaten the current positive tone.

• Pound – 1.7420

The break above 1.7375 (38.2% retracement of the 1.7904 to 1.7048 decline) keeps a positive outlook for Sterling yield further gains towards 1.7476. Weakness below Nov 29’s 1.7144 low would be necessary to undermine the basing prospect from Nov 28’s 1.7048 low.

• Aussie – 0.7505

The break of Nov 28’s 0.7456 corrective high and trend-line resistance originating from Sep 22 reinforced the developing recovery prospect from Nov 14’s 0.7261 low. With momentum conditions continuing to provide a positive backdrop, the market looks for extended gains en route to 0.7526, the 76.4% retracement of the 0.7605 to 0.7261 decline and 0.7600, the peak from Oct 27 thereafter. The immediate outlook remains constructive, with a loss of Nov 30’s 0.7371 low, required to threaten our preferred bullish view.

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