Australian FOREX Daily Oulook 04/08/2005

04/08/05 (03:00 GMT)

• Dollar is in deep doldrums after pivot technical barriers were broken on all majors led by the Euro and others followed suit with Dollar’s losses accelerating. Also continuous chatter of Central Banks reducing their Dollar holdings and good real money demand for other major currencies is weighing heavily against the Greenback. The slight decline in Services ISM did not help matters either with a robust Payrolls result tomorrow looking like the last throw of the dice for the Dollar. Every indicator released in the past week points towards good employment gain and the U.S. economy’s current state as well as the outlook stands apart from other key nations however if Central Banks across the globe keep reducing their holdings then Dollar has a mountain to climb to get back on track.
  

• Euro rallied to a two month high with the crucial pivot region of 1.2250-1.23 finally broken and it was done with ease and disdain. Large bids placed above 1.2275 were triggered creating a domino effect with another bout of positive data results from the zone acting as a catalyst. Retail sales were higher than expectations as was the Services ISM index. The ECB is set to keep rates on hold in today’s meeting and are likely to ignore calls for a cut from many quarters including prominent politicians. Meanwhile the Euro continues to rally strongly but the main supportive factor of the recent signs of pick up in its beleaguered economy has been the Euro’s decline boosting exports and if not carmaker BMW for example reported a drop in profits for Q2 due to a strong Euro. Thus continuous strengthening of the Euro could lead to a repeat of cyclical problems of the past.

• Yen caught between contradictory factors couldn’t gain as much as other majors and even though it has managed to break below 111, short term outlook remains a bit mixed. Dollar’s broad based decline is obviously helping the Yen strengthen while the renewed confidence in the economy led by the strong performance on the Nikkei as well as foreigners renewing their interest in Japanese assets. However near term risks include the unrelenting price action of Oil which in spite of high inventory remains supported on miscellaneous factors while Prime Minister Koizumi faces a big challenge as attention shifts to the parliament vote on the Postal privatization bill as the Yen continues to weaken on its crosses.

• Pound followed the Euro like a shadow and made another impressive rally breaking above 1.78 and it has now rallied by 450 points in the past week which is all the more commendable given the fact that BoE is likely to cut interest rates today. However there is still a question mark on the likely course of action undertaken as recent signs of improvement in consumer confidence have led some quarters to suggest a hold stance and if not in today’s meeting probably for the rest of the year. The higher than expected result in Services PMI was a welcome relief which adds as another reason for rates to be cut just once this year.

• Australian Dollar rode along the ride of Dollar misery which in turn helped it break the pivot 0.77 mark and apart from its usual supportive factors, new strength is derived from the assertion that the RBA in its monetary policy review next week would be a bit hawkish than it has been in recent times which should dispel fears of any rate cuts this year and give the impression that the next move would on the upside. However a few sectors of the economy are on the verge of a down cycle and it remains to be seen how they hold up.

EUR/USD – Yesterday’s low was 1.2148 and high was 1.2343.
The pair closed at 1.2329.

The pair has gone towards a two months high as the crucial region of 1.2250-1.23 was broken with ease which accelerated its gains. It is likely to meander below the 1.24 mark up to tomorrow’s Payrolls announcement. Some degree of profit taking could be in the offing with the 1.22 region now becoming the mild support area while on the upside another crucial resistance lies within the 1.2425-75 region. This pair was stuck within the 1.20-1.2450 region for most of last year and the Euro would find it difficult to break higher. A break below 1.22 brings decent bid interest in the 1.2130-45 zone for now with a wait and watch approach till the Payrolls.

Key resistance is seen at 1.2375 followed by 1.2450 while support starts at 1.2220 followed by 1.2140.

USD/JPY – Yesterday’s low was 110.98 and high was 111.92.
The pair closed at 111.16.

The pair followed other majors but is beset with its own problems which is leading to losses on its crosses and making gains stiffened on its crosses. Bids for the dollar persist within the 110.70-85 zone for now but a break below risks acceleration of its losses. On the upside resistance continues around the 112 region but key events in the form of Japanese postal bill as well U.S. payrolls outcome will drive the pair and conflicting volatile moves are likely. A decisive break below the support region finds distant strong support around 109.80 which should cap any gains for the Yen.

Key Resistance is seen at 111.95 followed by 112.55 while support starts at 110.70 followed by 109.80.

GBP/USD – Yesterday’s low was 1.7648 and high was 1.7831.
The pair closed at 1.7781.

The pair continues on its impressive rally breaking unexpected barriers with BoE’s rate meeting awaited. While the pair doesn’t have immediate resistance with regards to technical indicators till around 1.7920, the sheer size of its recent rally could lead exhaustion and profit taking. If they keep interest rates on hold than a further rally could eventuate while the opposite could lead to some profit taking with immediate support seen around 1.7680-95 with bottom picking bid interest seen around 1.76 and very strong support around 1.7555.

Key Resistance is seen at 1.7845 followed by 1.7925 while support starts at 1.7680 followed by 1.7615.

AUD/USD – Yesterday’s low was 0.7624 and high was 0.7725.
The pair closed at 0.7711.

The Australian Dollar is buoyed by strong data and remains well supported for now having stabilized above 0.76. Key pivot mark of 0.77 was broken above but upside should be difficult unless dollar is crashing no holds bar. Immediate resistance is seen in the 0.7740-55 zone with a decisive break above could bring more acceleration of gains. On the downside, mild support is seen around 0.7675 with a break below to lead decent bottom picking bid interest around 0.76.

Key Resistance is seen at 0.7755 followed by 0.7805 while support starts at 0.7675 followed by 0.7620

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