Australian FOREX Daily Oulook 02/09/2005

02/09/05 (04:00 GMT)

FOREX – Australian Dollar Market Summary

• Dollar is hitting rock bottom as bad news keeps pouring in from all sides with weakfundamentals, geo-political factors, natural disasters, break of key technical barriers coupled better data from other regions all combining to shift the Greenback in negative territory. Jobless claims rose, Personal income came below expectations, ISM manufacturing declined while one of Fed’s favoured measures to gauge inflation, PCE deflator rose less than expected. Also weighing in against the Dollar is aftermath of hurricane Katrina and the monumental damage caused by it while armed looting and collapse of law &amp order in a prominent city of the world’s largest economy is adding to the negative sentiment around it. Events of the past week have now thrown doubts on the Fed’s action to keep on raising rates till the end of the year. Still personal spending showed a healthy rise while today’s payrolls report should remain on robust levels but it is the outlook of the economy that is causing concern. With the Dollar lying on a stretcher, a good payrolls number could help it with a profit taking relief rally.

• Euro has hit a three month high by breaking above the pivot mark of 1.25 and remains well supported on Dollar’s misfortunes. Earlier, manufacturers battling with high costs of oil and energy led to the PMI index declining in Germany as well as the Zone as a whole but inched higher in France due to the recent boost in exports. However this recovery remains in doubt given that Euro is appreciating again while sky high oil prices are leading to a global slowdown. The ECB in line with expectations kept rates on hold and remained concerned about inflationary pressures with upside risks. Trichet’s comments had a hawkish tone to it but he was quick to dispel any thoughts that they might raise rates with growth concerns plaguing the global economy.

• Yen on lack of any Japanese data releases took cue from dollar’s general weakness and rallied by another 100 points, however its losses on the crosses is keeping any gains on the main pair stiffened. Oil prices are threatening the recovery in the second largest importer of oil with many reluctant to put their weight behind the Yen but given that high oil prices are raising import costs considerably for huge consumers like China, they might be tempted in going for another small revaluation step which would of course lend support to the Yen.

• Pound zoomed higher after key barriers were broken and it rallied by around 350 points against the Dollar as well as on most crosses. The first catalyst of this magnanimous rally came from the U.K. coming out on top in the manufacturing PMI data showdown compared to releases in USA and the Euro-zone as well. Unlike others, the index actually rose in the U.K. and went back into expansionary territory by inching to 50.1. However careful scrutiny of the report coupled with current conditions show inherent weakness with export orders staying flat and the employment index going towards its lowest since May 2003. Meanwhile house prices continue to decline with annual results showing the smallest price rise in 9 years. The Pound is likely to ease back as its rally has been exaggerated.

• Australian Dollar has broken back above 0.76 as key factors have gone its favour coupled with solid domestic data. Apart from the Dollar’s woes, the Aussie was boosted by strong capital expenditure by businesses which came nearly double than the consensus. This now raises hopes of a strong GDP outcome on the back of corporate profits. Events in the U.S. have raised doubts of the Fed’s future course of rate hikes which brings high yielders like the Aussie and the Kiwi back in favour. However there is no doubt that there are several chinks in the domestic economy’s armour with latest reports showing that house prices in Australia’s largest city Sydney suffering their biggest slump on record.

Key Price Levels

EUR/USD – Yesterday’s low was 1.2326 and high was 1.2526.
The pair closed at 1.2478.

The pair by rallying by 200 points and breaking above the crucial pivot resistance around 1.25 has gone into overbought conditions in intra day studies and a pullback towards 1.2390 support mark is likely. Mild bottom picking bid interest lies around that mark with a break likely to accelerate its losses which would bring into focus strong support around 1.2315. A clear below into the 1.22 region will shift the pair back in neutral territory raising hopes of a Dollar recovery. On the upside resistance now lies around 1.2580 with decent profit taking offer above 1.26 as U.S. payrolls data is eyed for direction.

Key resistance is seen at 1.2580 followed by 1.2625 while support starts at 1.2390 followed by 1.2175.

USD/JPY – Yesterday’s low was 109.60 and high was 110.93.
The pair closed at 109.92.

The Yen is under pressure on its crosses which is leading to its gains being stiffened on the main pair compared to other majors. The pair is in neutral territory and the Yen will only be able to take the initiative if it can break decisively below 109 pivot mark. Otherwise it is likely to go back into its 109-111 trading range as mixed interest lies within this region with strong resistance in the 110.90-111.05 zone. Support is equally strong around 109 with U.S. payrolls data eyed for some decisive breakouts.

Key Resistance is seen at 111.05 followed by 111.55 while support starts at 109.10 followed by 108.70.

GBP/USD – Yesterday’s low was 1.8006 and high was 1.8366.
The pair closed at 1.8315.

The pair’s recent move has even exceeded its usual exaggeratory standards and is in overbought region in intra day studies. A pullback towards 1.82 is likely where decent bid interest lies but technically mixed interest and no clear bias is seen from 1.83 down till the 1.8140-55 support region. A break below would shift the pair back in neutral territory and could accelerate its losses towards 1.8020-35 support region which is strong with equally strong bid interest seen around 1.80. On the upside, mild resistance comes up at 1.8365 with a break above leading to strong offers lined up to the very strong pivot resistance mark of 1.8425. A break above this crucial mark would send the Dollar in deep negative territory and could set the course for neat term movements.

Key Resistance is seen at 1.8365 followed by 1.8425 while support starts at 1.8140 followed by 1.8035.

AUD/USD – Yesterday’s low was 0.7535 and high was 0.7637.
The pair closed at 0.7623.

The Australian Dollaris back above 0.76 which has held decent offers in recent times with immediate resistance seen around 0.7690-0.7705 with offers increasing in strength above it. A break above brings very strong resistance around 0.7740 with gains beyond it, if any to face strong opposition and only a break above 0.78 raising hopes to reclaim the coveted 80 cent mark. Its high yield factor has now bumped up immediate support to the 0.7555 pivot mark with strong bottom picking bid interest to continue around 0.75.

Key Resistance is seen at 0.7690 followed by 0.7740 while support starts at 0.7555 followed by 0.7510.

Kunal Sharma

Forex Analyst

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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