Australian FOREX Daily Oulook 03/11/2005

MARKET SUMMARY – 03/11/05(03.00GMT)

• The Dollar was mixed against the major currencies overnight. The dollar was weaker against the European currencies, mainly on speculation that the European Central Bank would be much more hawkish at Thursday’s monetary policy meeting. However, the dollar was slightly firmer versus Asian currencies suck as the Japanese yen and the Australian dollar. These moves indicate that the currency markets are still very much focused on interest rate differentials, with speculation of rate rises to come in the United States and the Eurozone which contrasts with expectations in Japan where rates will stay at zero for a while. US 10year yields rose by 3pts to 4.6% while 2year yields were up 1pt to 4.424%. The US ISM non-manufacturing data is due out later today in the States. The market median is 57.0 for October, up from 53.3 in September. The market will also be looking for clues about U.S. monetary policy during Chairman Alan Greenspan’s testimony to the Joint Economic Committee due out later today.
  

• The Euro strengthened from lows of 1.1985 to trade as high as 1.2082 before ending around 1.2070 in the New York session. The stronger Euro is on speculation that the European Central Bank (ECB) would be more hawkish at today’s meeting. Though the ECB is fully expected to leave interest rates on hold tomorrow, recent statements by policymakers stressing the risk of rising inflation from higher energy prices have led the market to forecast a rate hike by early next year. The market will therefore be keeping a close eye on ECB President Jean-Claude Trichet’s accompanying press conference to see if he reiterates those hawkish comments.
  

• The Japanese yen traded in a range of JPY116.55-116.97 per US dollar, to close at 116.97 in New York. Analysts say the yen, with its low yield, has been one of the biggest victims of the market’s intense focus on interest rate differentials. There are no major economic releases in the Japan today.
  

• The Pound regained losses and finished at US$1.7757/60 in New York. The Pound bounced off its lows of US$1.7620 and traded as high as US$1.7772, on expectation the interest rate differentials would narrow. The market will now look to Thursday’s service sector PMI for October, for an indication on whether there will be an interest rate cut in the medium term.
  

• The Aussie dollar was initially sold down to a four month low of 0.7397, before recovering in the New York session to close near its highs of 0.7431. Sentiment in remains bearish, as the interest rate differential between the US and Australia set to narrow, given the RBA is only expected to raise rates in March next year. Retail sales were released today and fell by a seasonally adjusted 0.3 per cent in September, weaker than consensus market forecasts of a flat result and weighed down by a big fall in department store sales. Also out today was the trade number and it showed that the deficit widened to a seasonally adjusted $1.62 billion in September from $1.46 billion in August and above market expectations of 1.5 billion.

TECHNICAL COMMENTARY

• Euro – 1.2060

The Euro is caught in the middle of the 1.1900 to 1.2200 range. Initial Support lies at 1.1971 (Oct 31 low), with a break exposing 1.1900 the bottom end of the range. The major support remains at 1.1871 the July low. There is room to move on the topside in Euro with resistance located at 1.2204 (Oct 6 high).

• Yen – 116.90

USD/JPY continues to make advances with a possible extension towards 117.74 (Sept 8 2003 high). Above this level opens the way for a test of 118.43 resistance (50% retracement of the 135.18 to 101.67 decline).Short-term support is located at 116.00 with 114.60 taking on more significance.

• Pound – 1.7750

The recovery from 1.7620 gives some promise to bulls however the pound needs to regain the 1.7817 level to indicate a possible test of major resistance at 1.7904. Minor support is located at 1.7714 followed by major support at 1.7595(approximate 61.8% retracement of 1.7391/1.7904 advance.

• Aussie – 0.7415

Aussie has now breached the 0.7438 low (Oct 19 low) and now exposes 0.7365 (July 7 base and low for 2005). Resistance is now initially found at 0.7440 followed by 0.7520.