Australian FOREX Daily Oulook 07/10/2005

• Dollar declined further as part of further position squaring exercise on its recent gains while rate hike hopes in the Euro-Zone also led to the Dollar recording its largest single day drop against the Euro in more than 3 years. Jobless claims came in slightly higher than expected while the market is bracing for a negative Payrolls outcome.Sentiment wise aggressive rate hikes have been priced in by the market while given the high inflation, doubts have risen on the maintenance of steady growth levels in U.S. after recent mixed data outcomes. Fed members reiterated their concerns on inflation but oil prices have gone to their lowest level in past two months due to high prices crimping demand and U.S. ready to release its emergency stockpiles, some refineries are still shut by the hurricane impact and the need for winter heating fuel could well start another uptrend.

• Euro was the star performer in the market rallying across the board against the Dollar and on all its crosses. For a change, its gains were driven by its own factors rather than just the Dollar’s weakness. Euro bulls were pleasantly surprised after ECB President Trichet’s comments had a hawkish tone to it which accelerated the momentum for the Euro already buoyed by position squaring as he stated his concern on inflation and subsequently was prepared to raise rates. But the market seems to have gone ahead of itself as in spite of recent signs of recovery in the economy, consumer spending and confidence remain low and the main risks for the economy is on the growth side which would be further stiffened due to a rate hike in the near future. The sharp drop in German Factory Orders as well as Retail PMI for the zone was further proof that the economy is still on shaky grounds and the Euro after touching 1.22 has eased back.

• Yen finally managed to post some substantial gains due to the Dollar’s broad weakness but remains under pressure against the Euro as it went above 138. The Yen is a bit under the radar as the focus is mainly on events from the U.S. and Europe as well as the volatility in commodities.The focus shifts to today’s Household spending which is expected to increase while Economic Activity index should rally back into the expansion region. U.S. Payrolls is the main focus though with the Yen likely to be trapped in range trade.

• Pound zoomed higher breaking above 1.78 solely due to the general sell off in the Dollar but fundamentally it remains on a very shaky ground and is vulnerable on its crosses. Bank of England kept rates on hold and the sheer relief of that decision also helped the Pound and in spite of most indicators pointing towards a need for a rate cut in the near future, it is very hard for BoE to cut rates in the current environment where inflation is much higher than its target and is likely to increase further. Just weeks prior to the last rate cut, BoE officials had over estimated the growth outlook for the economy and they are likely to be caught on the wrong foot towards the end of the year which could lead to a rate cut. Earlier, Manufacturing and Industrial production data came below expectations due to poor domestic demand and high raw material prices.

• Australian Dollar has broken back above 0.76 on the back of the general sell off in the Dollar while Gold prices zoomed higher towards $ 474 and given the Aussie’s strong correlation with it, decent support cropped up. The Aussie stock market had another day of broad losses while the volatile nature of commodity prices due to the complex demand equation in the current environment of global growth hampered by high oil and energy prices has soured the sentiment against the Aussie a bit.

FOREX Related Upcoming Economic Release

FOREX (Foreign Exchange) Key Intra-Day Pivot levels

EUR/USD – Yesterday’s low was 1.2011 and high was 1.2204.
The pair closed at 1.2164.

The pair zoomed higher with Euro rallying on all its crosses helped by momentum buying, however its own rally could be exhausted soon and the pair could slip into range trade mode. First test of 1.22 has failed with 1.2240 posing as strong resistance and selling orders lying above it. A break above encounters very strong resistance in the 1.2275-1.23 region, this area is crucial and clear moves above could accelerate its gains with 1.2415 the traditional resistance mark. On the downside, mixed interest lies till the 1.2070 which is the immediate mild support level followed by stronger support in the 1.1990-1.2010 region.

Key resistance is seen at 1.2240 followed by 1.2300 while support starts at 1.2070 followed by 1.1990.

USD/JPY – Yesterday’s low was 113.01 and high was 113.99.

The pair closed at 113.39.

Yen gained on the back of general Dollar weakness but has lost on its crosses which could make this pair above the 112.90 support level with decent bid interest just below 113. A clear and decisive break below this mark could accelerate the pair’s losses before strong support comes up in the 112.35-50 region which expected to cap any losses. On the upside immediate resistance is around 114 with selling orders increasing above that mark. A break above should lead to very strong resistance around 114.50 which is expected to cap any gains for this pair.

Key Resistance is seen at 114.00 followed by 114.50 while support starts at 112.90 followed by 112.35.

GBP/USD – Yesterday’s low was 1.7662 and high was 1.7812.
The pair closed at 1.7765.

The pair prone to exaggerated movements managed to break above 1.78 and was duly sold with immediate resistance around 1.7815 and selling orders lying above it. Stronger resistance lies in the 1.7890-1.7910 region with strong offers around it, this region is very crucial and a clear &amp decisive break above could further accelerate its gains. On the downside, mixed technical interest lies till the 1.7655 mark where support is strong. A break below brings into focus very strong support around 1.7590 mark with decent bid interest around it.

Key Resistance is seen at 1.7814 followed by 1.7910 while support starts at 1.7655 followed by 1.7590.

AUD/USD – Yesterday’s low was 0.7565 and high was 0.7601.
The pair closed at 0.7591.

The Australian Dollarhas eased back but decent bid interest has emerged just below 0.7550 with decent support around 0.7540. It could be stuck in narrow range trade with poor data likely to limit upside with selling orders lying above the immediate resistance mark at 0.7620. A break above will bring into focus strong resistance around 0.7675 with only a break above likely to raise hopes of fresh gains. On the downside a clear break below 0.7540 could accelerate losses towards 0.7490 where bid interest is strong.

Key Resistance is seen at 0.7620 followed by 0.7675 while support starts at 0.7540 followed by 0.7490.

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