Australian FOREX Daily Outlook 13/12/2005

MARKET SUMMARY – 13/12/05(03.00GMT)

• The Dollar weakened against major currencies overnight on concerns the Federal Reserve may signal after its meeting on Tuesday that U.S. interest rates, which have largely supported the U.S. currency this year, are getting near a top. There is more uncertainty than usual over the accompanying statement. In the minutes of the November 1 Federal Reserve Open Market Committee (FOMC) meeting, all FOMC members saw the need to keep raising rates but said they must be increasingly sensitive to data. The Fed minutes said that the FOMC would need to change its statement language “before long”. The market is speculating that the Fed is likely to change language at tomorrow’s policy meeting, removing key wording indicating policy remains accommodative and that policy accommodation can continue to be removed at a measured pace. US advance retail sales is also due out later today in the States. Total retail sales are expected to rise by 0.4%, resulting in a rise in annual growth to 5.8% from 5.5%. The market ignored the US budget deficit which widened to US$83.06 billion in November, above expectations of 76 billion.
  

• The Euro rallied from 1.1794 to a 5 week high of 1.1981, before closing at 1.1945 in New York. The Euro benefited from dollar weakness across the board as the market speculated the Fed is coming to an end of its interest rate hikes.
  

• The Japanese yen strengthened from JPY121.01 per US dollar to JPY119.51, before closing at JPY119.77 in New York. Yesterday in Japan, consumer confidence index for October rose slightly to 48.2, from 47.9 the previous month. The Japanese current account surplus widened in October, and was slightly larger than expectation, at 1376.8 billion yen. The BOJ Tankan for Q4 is due out tomorrow and is likely to show improving confidence in both the manufacturing and non-manufacturing sectors.
  

• The Pound rallied from 1.7516 to trade as high as 1.7773, before closing at 1.7745 in the New York session. UK producer input price inflation outpaced output price inflation in November. Input prices rose 1.4% relative to the expectation of a 0.2% fall, while output prices fell 0.2%, compared to the expectation they would remain flat. UK CPI is due out tomorrow and is expected to rise a marginal 0.1% in November.
  

• The Aussie rose from 0.7510 to a high of 0.7562, before closing at 0.7550 in New York. Australia‘s dollar also gained on speculation the Federal Reserve will signal its series of interest-rate increases is nearing an end.

TECHNICAL COMMENTARY

• Euro – 1.1950

The move higher in Euro has confirmed a clear breach of the trendline resistance that was located at 1.1839.This sets the scene for a climb towards 1.2046, the 76.4% retracement of the decline from 1.2170 – 1.1644 while also setting the scene for gains towards 1.2170, the Oct 27 high. Support has been defined at 1.1768, Dec 9 low with 1.1900 now offering initial support.

• Yen – 119.90

Having pushed below the 119.95 Nov 28 high, the slide from 121.41 may be something more than just a small pullback. The USD/JPY has moved out of the bull channel that has confined this market since September. The 119.43 level holds the key being the 61.8% retracement of the 118.20 (Nov 23 reaction low) to 121.41 (Dec 5 trend high) rally. Initial resistance is located at 120.40 followed by the years high of 121.30.

• Pound – 1.7740

Acceleration of the recovery from the 1.7052 Nov 28 low continues, most recently pushing above 1.7701, the 76.4% retracement of the 1.7901 to 1.7052 decline. Penetration there brings the Nov 3 reaction high at 1.7795 into focus, followed by more important resistance from 1.7901 (high from Oct 27) to 1.7947 (61.8% of 1.8501 to 1.7052). Initial support runs in the 1.7582 (61.8% since Friday’s 1.7462 reaction low), but only a move below the 1.7493 to 1.7462 congestion area, would reverse the uptrend in the short term.

• Aussie – 0.7560

The neatly formed bull channel from 0.7261 (Nov 14 low) had little difficulty extending beyond last week’s 0.7545 high and is with striking distance of the 0.7572 (61.8% of 0.7762 to 0.7264 decline) to 0.7601 (Oct 27 reaction high). Initial support is in the 0.7490 area, the 61.8% retracement of the gains from last week’s 0.7442 low. Only a break of that reaction low would mark a clear departure of from the short-term bull channel.