Australian FOREX Daily Outlook 8/12/2005

MARKET SUMMARY – 08/12/05(03.00GMT)

• The Dollar was moderately firmer against the major currencies overnight. At the absence of first tier data, it seems to be a continuation of positive dollar sentiment. Economic data was limited to weekly mortgage applications purchase index, which was stronger than expected, and the Fed’s consumer credit for October, which was weaker than expected. In other news, Fed Chairman Greenspan wrote a letter to the Joint Economic Committee on November 28 which was published yesterday. Greenspan states, in the letter, that it’s impossible to know with certainty when the neutral interest rate will be reached. Looking ahead, US data today is limited to initial jobless claims with the market forecasting 317k in new filings.
  

• The Euro weakened from 1.1801 in the London session to a low of 1.1715 in New York, before closing at 1.1720. One of the reasons is the widely expected Federal Reserve rate hike on 13dec on the other hand, ECB executive, Lorenzo Bini, stated today that they are not planning to follow the Fed’s strategy.
  

• The Japanese yen traded in a range of 120.59 to 121.15, before closing the New York session at 121.00. There were a lot of headlines yesterday from BOJ members regarding discussions with Prime Minister Koizumi. BOJ Governor Fukui said that he did not discuss the specific timing of ending quantitative easing. BOJ Muto said that the government and the BOJ agree on the need to end deflation. The government’s keenest BOJ critic, Kozo Yamamoto, said that the BOJ should end quantitative easing until CPI inflation, growth in the GDP deflator, and inflation expectations all turn positive.
  

• The Pound started the day at its highs of 1.7427 in the London session and fell to a low of 1.7293, before closing at 1.7343 in New York. Lack of data from the U.K. meant the movement was largely based on the dollar gains. The Bank of England policy committee started its 2 day meeting today and will announce the decision on U.K.’s interest rate tomorrow. The market predicts that it will remain steady at 4.5%. However, the U.K. has been showing more reasons to cut the rate early next year.
  

• The Aussie ranged between 0.7456 to 0.7487 in London and New York before closing at 0.7475. The Aussie weakened today although employment data came in slightly better than expected. The market suggests that yesterday poor GDP data is having a delayed reaction and holds more significance than employment data. Employment rose 28k in November, slightly higher than market consensus for 15k rise.

TECHNICAL COMMENTARY

• Euro – 1.1720

A break of either 1.1820 high or Dec 2’s 1.1661 low is now required to initiate the next directional move with 1.1820 seen as the catalyst for extended gains towards 1.1903. On the downside 1.1661 is defined as the trigger for a move to 1.1586, the 38.2% retracement of the major 0.8227 to 1.3663 advance.

• Yen – 120.75

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 – 1.7350

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 – 0.7455

We’ve seen an abrupt sell-off from yesterday’s 0.7545 high, with extended weakness required through Monday’s 0.7450 low is required to more objectively define an interim high. Fresh upside beyond 0.7545 likely to expose 0.7572, the 61.8% retracement of the broader 0.7765 to 0.7261 decline, ahead of 0.7605, the peak from Oct 27