Australian FOREX Weekly Outlook 31/10/2005

31/10/05

The Dollar ended the week slightly lower despite the rally on Friday night. The Euro closed last week at 1.2065 having started the week at 1.1948. US$/JPY closed last week at 115.68 having started the week at 115.90. The GBP closed last week at 1.7736 having started the week at 1.7674. The A$ closed last week at 0.7562 having started the week at 0.7516.

A drop in US consumer confidence earlier in the week got the ball rolling, as all the majors made solid gains versus the dollar. This negative dollar sentiment continued for the majority of the week as the US sharemarket showed signs of faltering. Claims that VP Cheney was a chance of being indicted in relation to a leak of a covert CIA’S agents identity also added to the dollars woes. However, most of the losses were recovered on Friday evening after better than expected US third quarter GDP was released.

The week ahead in the US will see the market focus on the FOMC meeting on Tuesday where the Fed will raise interest rates by 25 basis points. As the rate hike is fully priced in, the market will scrutinize the statement for any indications of a shift towards a more neutral policy. According to most analysts this is highly unlikely, with the Fed expected to continue to raise interest rates by 25bp in November, December and January, before pausing at their target rate of 4.5percent. The key data highlights of the coming week will be the Chicago PMI/Prices (Monday), ISM manufacturing Index (Tuesday) and US payrolls (Friday). We will provide our previews of these data releases in the daily summary.

In the Eurozone concerns about inflation will be riding high at the European Central Bank (ECB) after German inflation remained relatively high at 2.6percent in October. While the market does not expect this to prompt the ECB into hiking rates, the feeling is for more hawkish rhetoric at the post-meeting press conference.The key data release in the Eurozone this week will be the PMI Survey (Tuesday), PMI services and German Unemployment (Wednesday). In the UK the coming week sees a number of housing market related releases, which are The Nationwide House Price Index (Tuesday) and UK Mortgage approvals (Tuesday). We will provide our previews of these data releases in the daily summary.

In Japan, rising inflationary pressure is less of concern, but price changes are still central to the Bank of Japan’s key challenge over the coming year. There are no major data releases in Japan this week. A big week ahead in Australia, firstly Tuesday sees the RBA Board meeting with no move in rates expected on the Wednesday morning. Wednesday also sees the release of building approvals followed by trade balance and retail sales (Thursday).We will provide our previews of these data releases in the daily summary.

Key Weekly Pivot levels

EUR/USD – 1.2055

The move and close above the 1.1995 now confirms a triple bottom in place at 1.1871. After knocking out resistances at 1.2119 and 1.2149 (38.2% of 1.2590 to 1.1877), the rally ran out of steam in front of the 1.2204 Oct 19 resistance on Friday. The setback from 1.2170 is within striking distance of support from 1.2045 (Oct 26 reaction low) to 1.2017 (61.8% of 1.1923 to 1.2170). Support at 1.2053/1.1995 is expected to attract buying. Resistance is now located at 1.2204 with the next big level is in the 1.2318 area, the 61.8% retracement of the large decline from the 1.2590 Sep 02 high to the 1.1877 Oct 19 low

USD/JPY – 115.65

Prices continue to consolidate between 114.60/116.00 for the past week. Analysts are divided about which side will eventually break. Those looking for a breach of the downside, point towards bearish divergence being in place on the daily studies as prices look overbought near 116.00. Those looking for the move higher to continue, suggest that while 114.60 holds we can see a test and break of 116.20 followed by 116.90.

GBP/USD – 1.7750

Although breaching the key resistance level at 1.7817, which represents the 38.2% retracement of the 1.8501-to-1.7391 decline of Sept.-Oct, cable as unable to register a weekly close above this level. Some analysts suggest a move higher is still possible while support at 1.7735 and 1.7597 holds but requires a close above 1.7812 to signal addition gains towards 1.7950 and 1.8077.

AUD/USD – 0.7490

Aussie rallied above 0.7545 resistance but failed to register a close above this level, hence ruling out a test of major resistance at 0.7650. Market sentiment is now expecting the Aussie to remain vulnerable in the near term near-term, with another test of the double bottom at 0.7443 likely to be tested. The major support is still located at the 0.7369 July low.

Rory Kennedy

Sydney Dealing Desk
E-mail: rory@easy-forex.com

T: 1 800 176 935

Int. +61 2 9232 2443