Australian FOREX Daily Oulook 01/11/2005

MARKET SUMMARY – 01/11/05 (03.00GMT)

• The Dollar followed on from Friday and continued to rally against all the majors. The reason for dollar extending its gain was due to more robust economic data, signally that the Federal Reserve will continue to increase rates in the future. US personal spending increased 0.5% in September, in line with the market’s expectation. US personal income surged in September to 1.7%, as insurance benefits more than outweighed the negative impact of the hurricanes. This was way above the market expectation which centered on 0.5% increase. The US Chicago PMI Index also rose to 62.9 from 60.5 in October. The market had expected some unwinding to 57.5 following the strong surge in September. The strength of the report was broad based. The market now turns its attention to the Fed meeting tonight. It is fully discounted that the Fed will raise rates by 25 basis points, but the interest will be in the statement that follows. The market expects the Fed to repeat it’s commitment to continue to tighten policy at a measured pace. The view is that the Fed will continue to raise rates in November, December and January, before pausing at 4.5%, though some are suggesting the possibility of one further hike in February should economic data continue to be strong. The US ISM survey is due out today, and the index defied expectations to rise to 59.4 in September from a previous 53.6. The market is looking for a modest increase and expectations are centered at 59.9 for the headline and would constitute the highest level since July 2004.

• The Euro eased from 1.2087 to 1.1967, perched near 1.1990 late in the New York session. The strong data out of the States was the main contributor to Euros weakness as it confirms the Fed is fully expected to raise U.S. interest rates. This is in contrast to the European Central Bank, whose officials have turned more hawkish in the past month, but analysts say a hike in Eurozone interest rates is not expected anytime soon, certainly not at this Thursday”s council meeting. The key data release in the Eurozone will be the PMI which is out later in the day. The market expects the survey to post its third consecutive monthly rise in October with expectations centered on 52.7.

• The Japanese yen fell 2 a two-year low of JPY116.45 per US dollar, down from JPY115.54. Market sentiment has soured on the yen for the past month despite fairly positive Japanese economic numbers, weighed down by Japan’s low interest rates in an environment where most major economies are on a tightening path. The Bank of Japan, as expected kept monetary policy unchanged in yesterdays meeting. There are no major economic releases in the Japan today.

• The Pound was also sold-off from 1.7824 to a low of 1.7674 after data showed UK consumer confidence declined unexpectedly in October to its lowest since March 2003. The strong economic figures from the US also contributed to the Pounds weakness. The Nationwide House Price Index is due out later today and could present a clearer picture of what is happening in this sector.

• The Aussie dollar eased from 0.7521 to 0.7464 before setting in the New Session around 0.7475. The Aussie was under pressure from the start of the US session on the back of the solid US data. Wednesday sees the release of Australian building approvals for September. The construction industry is still struggling, with building approvals having dropped almost 17% since their recent peak in May this year. The market is expecting total building approvals to rise 4% over the month of September.

TECHNICAL COMMENTARY

• Euro – 1.1980

The Euro remains under pressure and breached short-term support at 1.2045 (Oct27 low). A break of 1.1923 would then expose the triple bottom at 1.1871. On the topside, short-term resistance is now at 1.2045 which was the previous support. The major resistance is still located at 1.2204.

• Yen – 116.50

The consolidation between 114.60/116.00 was finally breached on the topside with a break and daily close above 116.00. The next important level on the topside is 116.90 followed by 117.74(Sep 8, 2003 high). Short-term support is located at 116.00 with 114.60 taking on more significance.

• Pound – 1.7690

The importance of 1.7817 was highlighted with sterling unable to recover and broke below short-term support at 1.7714. The door is now open for a test of major support at 1.7595(approximate 61.8% retracement of 1.7391/1.7904 advance.Analysts expect any recoveries towards 1.7817 to attract selling pressure with major resistance seen at 1.7904.

• Aussie – 0.7460

Aussie failed to hold onto initial support at 0.7470 (76.4% retracement of 0.7438 to 0.7605 advance). The expectations are for a test of 0.7438 and if unable to hold then the July 7 base of 0.7365 is the next level. Topside resistance is now located at 0.7520 followed by 0.7570 and 0.7650.

Rory Kennedy

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

T: 1 800 176 935

Int. +61 2 9232 2443