Australian FOREX Daily Outlook 22/12/2005

MARKET SUMMARY – 22/12/05(03.00GMT)

• The Dollar continued its gains on major currencies overnight with talk of US companies repatriating foreign currency earnings ahead of year-end. The Homeland Investment Act (HIA) allows US companies to get a one-time reduced tax rate during 2005. The market ignored the GDP data overnight which was below expectations. The US economy grew at a 4.1pct annual pace in September quarter, down from the earlier estimate of 4.3pct, but the fastest growth pace since March quarter 2004. The measure of inflation – the core personal consumption deflator – rose at a 1.4pct pace, down from 1.7pct in the June quarter. Looking ahead Personal Income and spending data, along with leading indicators for November will be released later in the day.
  
  The Euro fell over 100 pips against the dollar from 1.1908 to 1.1800, before closing at 1.1835 in the New York session. The market will focus on the German regional reports due out later today. The market is expecting a rise of 0.9pct in the month with the annual rate expected to fall to 2.1pct from 2.3pct.
  

• The Japanese yen eased from JPY116.94 per US dollar to JPY117.50, before ending in New York near JPY117.25. Japan October all industries activity index came in stronger than expected at 0.9pct m/m against the consensus of 0.5pct. So far the Japan economy continues to show positive signs, however this does not necessarily mean an end to ZIRP (Zero Interest Rate Policy).
  

• The Pound was the worst performing currency overnight, falling from 1.7591 to a low of 1.7385, before closing the New York session at 1.7440. The reason for the fall was the MPC minutes came in more dovish than expected. Steve Nickell revealed to have dissented from the other 8 members in favor of an easing. UK third quarter current account data and final third-quarter growth data are due out later today.
  

• The Aussie dollar fell from 0.7366 to 0.7318, before closing at 0.7330 in the New York session. Today, Australia‘s international merchandise imports totaled A$15.196 billion ($11.09 billion) in November, up from A$13.393 billion in October.

TECHNICAL COMMENTARY

Euro – 1.1830

The December volatility continues with the slide from 1.2062 moving into the 1.1818 (previous high from Dec 5) to 1.1800 (61.8% of 1.1638 to 1.2062) support zone. Hourly momentum indicators are attempting to form bullish divergences in oversold territory, a sign that the current 1.1801 low will be tough to break. But only a sustained move above the 1.1914 (reaction high) to 1.1962 (61.8% of 1.2062 to 1.1801) band of resistance would bring focus back to the 1.2062 Dec 14 high.

• Yen – 117.40

While it’s encouraging for long-term USD bulls that last week’s abrupt sell-off from the previous week’s 121.41 high on Dec 5 has thus far held the zone of support between 115.09, the 50% retracement of the advance from 108.76 to 121.41 and area of former resistance from July 20 at 113.73, renewed gains beyond Dec 15’s 117.70 high are minimally required at this stage to relieve the immediate bearish tone. In lieu of 117.70+ price action, and despite yesterday’s recovery from a 115.52 low, near-term gains are considered corrective, with a loss of 115.52 likely to expose 115.09 ahead of 113.73.

• Pound – 1.7450

The slide from 1.7810 continues to plod lower, slowly eroding through supports, keeping the pattern of lower lows and lower highs alive. The violation of the Dec 9 congestion from 1.7493 to 1.7462 has the door open toward the next and even more important support from 1.7339 (61.8% of 1.7048 to 1.7810) to 1.7290 (Dec 7 reaction low). A break of this range would reestablish the broader bear trend for an eventual drop below the 1.7048 Nov 28 low. Short-term resistance is at the recent 1.7594 reaction high.

• Aussie – 0.7340

The recent pummeling of this pair put it below support at 0.7383 (61.8% of 0.7261 to 0.7580) to 0.7372 (Nov 29 reaction low). That opened the door for a run toward 0.7325 (Nov 28 reaction low), and violation there leaves the pivotal 0.7261 (Nov 14 low) to 0.7242 (61.8% of 0.6781 to 0.7989) area as the next support. Only a move above 0.7419 (38.2% retracement of the declines from 0.7580 thus far) would point to a notable relief rally taking hold.