Australian FOREX Daily Outlook 28/11/2005

MARKET SUMMARY – 28/11/05(03.00GMT)

• The Dollar strengthened against the major currencies on Friday in a thin trading session as many took the long weekend for Thanksgiving holiday. US sharemarkets rose on Friday, with investor’s hopeful that retailers benefited from solid Thanksgiving holiday sales. Overall, US sharemarkets have risen for five consecutive weeks. US treasury prices rose on Friday as traders prepared for a raft of economic data to be released over the coming week. Tonight the US markets will have existing home sales data for October. Annualized existing home sales are expected to be around the 7.2 million level. Given the recent concerns over the undue strength of the US housing market any signs of weakness in this series could confirm the market’s view that the Fed funds may peak at 4.5% in late January 2006.

• The Euro initially gained against the dollar in the London session as it traded to a high of 1.1788, before being sold off to 1.1708 and closing around 1.1720 in the New York session. In Germany the new Chancellor, Angela Merkel, took office 3 days ago with a grand coalition of Social Democrats and her Christian Democrats. Efforts to reduce Germany’s 3% budget deficit appear to be the main priority over the next few months.

• The Japanese yen fell to a 27-month low of JPY119.68 per US dollar, off session highs of JPY119.16. On Friday in Japan, the headline CPI came out in line with expectations. BOJ officials have indicated that the 4 year long period of deflation is likely to end next year. It is assumed that a period of positive annual CPIs will mean that the cash rate can be lifted from its current zero level.

• The Pound followed the other European currencies and traded down to 1.7120 from a high of 1.7230, before closing around 1.7135. UK’s third quarter GDP growth was revised up to 1.7 % on an annual basis from 1.6 per cent in the previous estimate, although quarter-on-quarter growth remained unrevised at 0.4 %.

• The Aussie dollar drifted between 0.7344 and 0.7376, before closing the New York session at 0.7350. Aussie was stronger against European currencies as it continues to attract buying interest on the basis of interest rate differentials.

TECHNICAL COMMENTARY

• Euro – 1.1690

Recent consolidation has defined initial support at 1.1644, the Nov 15 low which also represents this year”s low. A break back below 1.1644 would suggest a resumption of the underlying bear trend exposing 1.1588 and the psychological 1.1500 level. Resistance is located at the former 1.1877 support marking the Oct 19 low. Clearance of 1.1877 would open the door for a climb towards 1.1907 and 1.1969 (50% and 61.8% retracement levels 1.2170 to 1.1644 decline). Clearance of 1.1969 is required to suggest some form of trend reversal.

• Yen – 119.85

The broad up-trend remains intact, with fresh upside gains beyond 119.57 now targets a move to 119.83, the high from Aug 19, 2003, then 120.73, the peak from Aug 1, 2003. Trendline support is located at 118.20 and a break of this level would provide the first sign of further weakness and would bring Nov 9”s 116.86 low into play.

• Pound – 1.7110

For renewed weakness to occur a move below Tuesday”s 1.7065 low is necessary to signal a test of the psychological 1.7000 level. For renewed upside a break of1.7261 would yield further corrective gains towards 1.7326, former support from Nov 8, but with scope for 1.7388, the 38.2% retracement of the 1.7904 to 1.7065 decline thereafter.

• Aussie – 0.7370

Aussie failed to make decisive headway beyond 0.7392, the 38.2% retracement of the 0.7605 to 0.7261 decline. Further weakness below last Friday”s 0.7300 low is required to confirm a resumption of the broader downtrend. The focus remains on Monday”s 0.7397 peak followed by resistance at 0.7433, the 50% retracement and area of former support from Oct 19.