Australian FOREX Daily Oulook 07/11/2005

MARKET SUMMARY – 07/11/05(03.00GMT)

• The Dollar dipped briefly after the payrolls data, but soon reversed and strengthened significantly against all the majors. US non-farm payrolls rose by 56,000 in October, well short of expectations which were looking for a rise of approximately 100,000. There were also 36,000 fewer jobs created in August and September than previously reported. Average hourly earnings rose by 0.5% in October, this is the largest rise in two and a half years. The positive side of the data was the unemployment rate falling from 5.1% to 5%. The market consensus is that the Federal Reserve will continue to raise interest rates, and this data will not alter that stance hence the strength in the dollar continued on Friday night. This is contrary to other central banks in Europe and Japan who are refraining from increasing rates in the near term.
  

• The Euro hit an 18-month low of 1.1801 in the New York session and down from the session highs of 1.1992.The Euro continues to suffer from comments made earlier in the week from the European Central Bank President Jean-Claude Trichet, who said the current level of interest rates is “still appropriate,”. Earlier in the day, Eurozone producer price rose by 0.5% in September, in line with market expectations and this had no impact on the currency. The monthly gain takes the annual rate to 4.4%.
  

• The Japanese yen slumped to a 26 month low versus the dollar, falling to JPY118.33 per US dollar from JPY117.38 earlier in the session. The yen is weakening as ministers in Prime Minister Junichiro Koizumi’s cabinet and the Bank of Japan clash over interest rates and the outlook for prices. The BOJ said in a report, that seven years of deflation will end by April. This was quickly rebutted by Finance Minister Sadakazu Tanigaki, who said deflation had not been defeated.
  

• The Pound fell nearly one per cent on the day down to US$1.7459 after the sharp rise in the dollar and some weak data from UK. The UK consumer bankruptcies rate reached record highs in 3rd quarter and slightly weaker than expected Halifax‘s house price data showed prices were flat in October. The Pound closed the session around 1.7500 in New York.
  

• The Aussie dollar fell from 0.7394 to a 12 month low of 0.7311, before ending the New York session at 0.7330. The Reserve Bank will release its quarterly monetary policy later today, with the market expecting the RBA to adopt a gentle tightening bias. This will be viewed as an insurance policy, not an indication of an imminent rate rise.

TECHNICAL COMMENTARY

• Euro – 1.1815

The Euro has traded down nicely and broken the triple bottom at 1.1871 (July low). With the close below this level the market looks likely to test the next support level at last year’s low of 1.1762 recorded on Apr 26 2004. Initial resistance is now located at 1.1870 (previous triple bottom), with major resistance at 1.2040.

• Yen – 117.80

USD/JPY continues its advance upwards taking out resistance at 117.74 (Sept 8 2003). This exposes resistance at 118.43 (50% retracement of the 135.18 to 101.67 decline), and above that 120.70 to 121.85 zone which is determined by multiple price peaks formed in 2003. On the downside, a close below the upward sloping trendline drawn from mid September low is needed to threaten the trend. The rising support line currently cuts in at 116.00.

• Pound – 1.7495

The Pound remains vulnerable below Monday’s 1.7825 high and with a break of 1.7595 (Oct 20 low and approximate 61.8% retracement of the 1.7391 to 1.7904), now exposes 1.7423, Oct 18 low. Resistance is now located at 1.7595, with major resistance at 1.7825.

• Aussie – 0.7335

Aussie continues its slide with a break and close below 0.7365 (July 7 base and low for 2005). The next support is not found until 0.7238 (61.8% retracement of the 0.6773 to 0.7990). Initial resistance is now located at 0.7365 (previous low), followed by 0.7440 and major resistance at 0.7520.