Australian FOREX Daily Oulook 19/09/2005

• Dollar has rallied across the board in early Asian trading as it benefits by default due to the inconclusive outcome of the German elections over the weekend. Earlier on Friday, the Dollar was boosted by the unexpected surge in net foreign capital inflow with the previous month’s figure revised higher as demand for U.S. assets grows by the day. The increase came from private investors with purchases of U.S. securities going to their highest level in more than two years. This strong result offset any negatives emanating from a much weaker than expected result in the Consumer sentiment index, which is understandable after any natural disaster and the subsequent effect on prices. For now, the Dollar remains supported on the near certainty of the Fed increasing rates in tomorrow’s meeting.

• Euro has slipped back below 1.22 in early trading as the worst case scenario from the election outcome has eventuated with both major parties falling short of a majority with opposition leader Merkel’s party winning by 3 seats and insisting that she has a clear mandate to form the next government but at the same time reigning Chancellor Schroeder insists that he has enough votes to remain in power and is looking to form a grand coalition. Needless to say any government that would be formed now would not be on a stable footing and may not be able to push through any plans comfortably through parliament. Earlier, French Current account deficit ballooned higher with the high costs of oil and energy weighing in against it. The Euro is expected to stay on the backfoot till the outcome of German elections is clear.
  

• Yen has slipped lower and broken out from its recent range after resistance around 111 gave way. The strong capital inflow data for the U.S. also highlighted the yield disadvantage the Yen has compared to very other major currency and this already substantial gap is set to increase further significantly in months to come. However thanks to weakness around the Euro the Yen’s losses have been comparatively lesser and while the medium to long term outlook for the Japanese economy is promising, it’s the current conditions that the market is concerned about with consumer spending failing to pick up. Warning from China’s central bank in terms of Yuan revaluation also kept the Yen on the back foot.
  

• Pound is finding decent bottom picking bid interest around 1.80 but it has fallen taking cue from Euro’s weakness. For now the main driving factor for the Pound is the future monetary policy stance with current conditions and data pointing towards a need for a rate cut in the near future but at the same time Bank of England officials have stated time and again on their concern of rising inflationary pressures which has zoomed higher on oil prices. David Walton who was one of the members, who voted in favour of a rate cut, stated that eventually lesser demand will reduce inflation. This is the more likely scenario where BoE will be compelled to cut rates again. Meanwhile, the latest house price survey has seen prices falling more than expected with further falls seen in months to come.

• Australian Dollar continues to ease back slightly taking cue from other majors but its comparatively better fundamentals and current conditions compared to most, is lending decent support with forecast for Australia’s commodity exports revised higher amid surging demand. However for a change the attention was focused across the Tasman as New Zealand’s weekend election outcome has been tighter than Germany’s with a clear result not looking possible for another two weeks. And even with a result, a government would only be formed on an uncomfortable coalition.

FOREX Related Upcoming Economic Release

FOREX (Foreign Exchange)Key Intra-Day Pivot levels

EUR/USD – Yesterday’s low was 1.2200 and high was 1.2308.
The pair closed at 1.2238.

The pair has crashed on German election uncertainty before stabilizing above 1.2140 mild support mark with further acceleration of losses likely. Strong support is seen around 1.2070 but mild bottom picking bid interest lies just below 1.20. Any move lower, would shift the Euro in deep negative territory and make it very hard for it to pare back its losses. On the upside, immediate mild resistance lies in the 1.2240-55 zone with mixed technical interest seen up to the 1.2315 mark which holds very strong resistance. Any gains for the Euro are expected to be capped within the 1.24 region with more losses likely.

Key resistance is seen at 1.2255 followed by 1.2315 while support starts at 1.2140 followed by 1.2070.

USD/JPY – Yesterday’s low was 110.45 and high was 111.45.
The pair closed at 111.30.

The pair has finally managed to break past its recent range with mild bias for the Dollar. Immediate resistance is seen around 111.80 with decent offers lined up on any break above 112. A clear break into the 112 region will bring into focus the very strong resistance region of 112.30-45 which is expected to hold firm. Any moves above it would shift the Yen in deep negative territory. On the downside immediate support has now moved down to 110.55 with strong bottom picking bid interest seen just below 110 followed by very strong support around 109.75

Key Resistance is seen at 110.95 followed by 111.40 while support starts at 109.75 followed by 108.95.

GBP/USD – Yesterday’s low was 1.8019 and high was 1.8145.
The pair closed at 1.8075.

The pair has slipped back further shifting it into neutral territory with mild bias for the Dollar, for now decent bids are lined for the Pound within the 1.80 region. With strong support around 1.80, however a clear decisive break below 1.80 would shift the Pound in negative territory and clear the way for further Dollar gains with distant support around 1.7910. On the upside, immediate resistance has moved down to 1.8105 with a break above bringing mixed technical interest and mild bias for the Dollar up to the 1.8240-55 region which holds decent resistance. Any prospective gains are expected to be now capped within the 1.83 region with very strong resistance around 1.8315.

Key Resistance is seen at 1.8110 followed by 1.8245 while support starts at 1.8000 followed by 1.7910.

AUD/USD – Yesterday’s low was 0.7640 and high was 0.7704.
The pair closed at 0.7665.

The Australian Dollarremains at a pivotal stage and has eased back below 0.77 but at the same time is finding good support around the 0.7635 mark. Any foray above 0.77 should continue to lead to selling interest with immediate resistance around 0.7735 and any break above 0.7755 to intensify the strength of the selling orders. On the downside a break below the support mark could accelerate losses before strong support is encountered in the 0.7590-0.7610 region with a clear break below to shift the momentum back in the Dollar’s favour.

Key Resistance is seen at 0.7735 followed by 0.7775 while support starts at 0.7635 followed by 0.7590.

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