Australian FOREX Daily Outlook 15/12/2005

MARKET SUMMARY – 15/12/05(03.00GMT)

• The Dollar recorded its largest one day drop against the Japanese yen since March 2002. The dollar strengthened slightly against the other majors overnight. Surprisingly there was little reaction to the US trade deficit which rose by US$2.89 billion to a record US$68.89 billion in October. A narrowing in the deficit to$US62.9 billion from US$66.1 billion in September had been expected. The October data is clearly distorted by the hurricanes but the underlying picture remains one in which the US trade deficit is huge on an historical basis. Looking ahead, and economic data due today includes the TIC report, CPI and US industrial production and capacity utilization. Market expectations for the TIC report is for a decline in the flows to US$75.4 billion in October from US$101.9 billion in September. The US CPI is expected to fall by 0.4% in November. The manufacturing ISM survey points to upside in US industrial production growth. The market expects a further rise of 0.5% in November, bringing annual growth to 2.2%.
  

• The Euro rallied sharply in the Asian session yesterday, but eased in overnight trade from a high of 1.2058 to a low of 1.1990, before closing at 1.2000 in New York. Like the dollar the Euro weakened against the Japanese yen, falling from 143.50 to 140.35.
  

• The Japanese yen started its move higher versus all majors in the Asian session yesterday and continued to make further gains overnight. The Japanese yen lifted from JPY118.86 per US dollar to JPY116.71 before settling near JPY117.30 in New York.The move started when the Japan Tankan Survey (Q4) rose to 21 from 19 for the headline large manufacturer’s index. The rise was less than the 23 expected. However, the important point is that the headline index rose for the third consecutive quarter. All the major components showed improvement and the result suggests that Japan’s economic recovery can continue to a 5^th consecutive quarter.
  

• The Pound traded down from a high of 1.7807 to a low of US$1.7685 after release of UK economic data. However, it regained some strength and traded as high as US$1.7770 after the announcement of the US economic figures. The GBP closed lower at around US$1.7720 level in New York. UK jobless claims rose a larger-than-expected 10,500 from October to 902,000. The jobless rate held at 2.9% for a second month, the highest since January 2004.
  

• The Aussie was relatively steady with a trading range of 0.7533 to 0.7578, before closing at 0.7555 in the New York session. In Australia yesterday, consumer confidence fell 2.7% to 104.7 following a 9.0% gain last month. Confidence has fallen for 4 out of the last 6 months and remains down 11.6% from a year ago. This month’s fall was on the back of concern over higher interest rates and a fall in house prices.

TECHNICAL COMMENTARY

• Euro – 1.1990

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. Initial support is found at 1.1988 (Dec 13 high) followed by 1.1900 (Nov 28 high).

• Yen – 117.30

The decline from 121.41 picked up steam Wednesday with a break of the 119.43 (61.8% of 118.20 to 121.41) support which sparked the acceleration through 118.33 (Nov 28 reaction low) and 118.20 (Nov 23 reaction low) congestion. The decline continued through 116.86 (Nov 9 reaction low) to 116.58 (38.2% of 108.76 to 121.41) to 116.44 (121.41-(113.73-108.76)) pivotal support area. This support is providing a floor to this sharp correction followed by support 115.99 (Oct 19 high) to 115.09 (50% of 108.76 to 121.41). The oversold nature sets the stage for a possible recovery, with focus now on 118.51 (38.2% of the declines since 121.41).

• Pound – 1.7710

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 – 0.7545

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.