Australian FOREX Daily Oulook 23/08/2005

23/08/05 (05:00 GMT)

• Dollar slipped back mildly as lack of any U.S. data releases coupled with thin market conditions led to profit taking with all majors keeping within their ranges. Nonetheless the Dollar remains on reasonably strong footing and this week’s housing data should continue to project solid strength in spite of slight concern of prices topping out demand remains robust. Oil prices inched a bit higher as familiar problems refuse to subside with supply disruptions in the gulf acting as a catalyst this time. Since geo-political problems are also lending solid support to prices any mild bout of profit taking is followed by prices jumping back up which is a major cause for concern.

• Euro broke back above 1.22 but stayed within its range with not many factors to push it decisively higher the focus shifts to today’s German ZEW economic sentiment survey, which given the recent pick up in exports and domestic demand, is expected to inch higher. Earlier the Current Account data from the zone showed the surplus making way for a deficit however this makes up a miniscule percentage of the GDP instead the market focuses its attention on the sharp rise in net capital inflow. With the combined net inflow in direct and portfolio investment coming in nearly 4 times the previous month.

• Yen managed to post a modest rally early in the Asian session yesterday, thanks to a further increase in approval ratings for Prime Minister Koizumi as he looks set to be reelected on September 11. Not only does he look like coming back with an increased mandate but his reform plans are supported by his party after prior disagreements. This morning the Tertiary Industry index, which measures spending in the Services sector, rose in line with expectations. This is keeping in line with the renewed optimism in the economy with increase in consumer confidence translating to a rise in spending. Among these positives the decline in department store sales was shrugged aside by the market with focus also on the record run on the Nikkei.

• Pound managed to break back above 1.80 due to general mild profit taking on the Dollar while the assertion that U.K. rates may not be cut again in the foreseeable future also continues to lend good support while at the same time shows that its sharp fall last month was due to the stream of short positions built on this fear and were accordingly squared this month. Key sectors of the economy led by the housing sector are showing signs of stabilization while this week’s GDP should reflect growth to remain at steady levels. However, its yield advantage is set to disappear by next year against the Dollar which is likely to weigh against it.

• Australian Dollar remained firm on the general buying of commodity bloc currencies with good support and bid interest coming up on dips below 0.75. Lack of any key local data releases will shift the attention squarely on U.S. events to drive it further but is likely to locked in narrow range bound movements.

EUR/USD – Yesterday’s low was 1.2161 and high was 1.2242.
The pair closed at 1.2229.

The pair is in semi neutral territory with mild bias for the Dollar after key support levels were breached. Immediate support is now seen in the 1.2105-20 zone with mixed interest seen within the 1.21 region which could lead to patchy directionless trading. A clear and decisive break below could accelerate losses with strong support seen in the 1.2040-55 region with decent bottom picking bid interest seen around and just below 1.20. On the upside resistance levels have moved down with immediate resistance seen around 1.2240 as upside looks increasingly difficult. In case of a break above stronger resistance exists around 1.2310 with selling orders intensifying above this mark.

Key resistance is seen at 1.2240 followed by 1.2310 while support starts at 1.2105 followed by 1.2055.

USD/JPY – Yesterday’s low was 109.40 and high was 110.50.
The pair closed at 109.66

The pair managed to ease back and is playing within its range with the 109-111 range play the likely order of the day. Strong resistance is seen in the 110.95-111.10 zone with a break above to shift the momentum back in the Dollar’s favour and the Yen risks acceleration of losses. 111 region has mixed technical interest with no clear bias before strong resistance crops up around 112.15. On the downside mild support has now moved up to 109.45 followed by strong support in the 108.90-109.10 region which has held well so far while any breaks below 109 have strong bottom picking bid interest for the Dollar

Key Resistance is seen at 110.95 followed by 112.05 while support starts at 109.45 followed by 109.05.

GBP/USD – Yesterday’s low was 1.7946 and high was 1.8046.
The pair closed at 1.8013.

The pair remains reasonably supported but a decisive upside move is more difficult with immediate resistance cropping up in the 1.8040-55 resistance zone. A break above brings into focus the technically mixed interest region up to 1.8175 with mild bias to the Dollar. Above which lies very strong resistance in the 1.8200-25 region with very strong offers lying around it. On the downside immediate support has moved down to 1.7915 followed by strong support around 1.7860 with a break below risking acceleration of its losses.

Key Resistance is seen at 1.8055 followed by 1.8175 while support starts at 1.7915 followed by 1.7865.

UD/USD – Yesterday’s low was 0.7513 and high was 0.7566.
The pair closed at 0.7515.

The Australian Dollarremains vulnerable for further losses with immediate support seen around 0.7475 with decent bid interest around this mark. A break below risks further acceleration of losses till strong support is encountered around 0.7425 and sentiment would shift in deep negative territory. On the upside immediate resistance is seen around 0.7590 with any foray above 0.76 leading to strong selling interest. Very strong resistance exists around 0.7645 with only a break above to shift the pair back into neutral territory.

Key Resistance is seen at 0.7590 followed by 0.7645 while support starts at 0.7475 followed by 0.7425.

Kunal Sharma

Australian Financial Services License 246566

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