Australian FOREX Daily Oulook 08/11/2005

MARKET SUMMARY – 08/11/05(03.00GMT)

• The Dollar tested fresh multi-month highs against major currencies overnight, but failed to follow through. The dollar backed away from its highs against the majors, given the absence of first tier US economic data. However, US sharemarkets rose as crude oil prices feel by nearly 2percent as concerns eased about lofty energy bills and inflationary pressures. The lack of data in the early part of the week sees the market expecting a consolidation phase for the dollar. However, some traders point towards talk of dollar buying being driven by US multinational companies repatriating dollar denominated profits under the Homeland Investment Act. This buying is expected to keep the dollar well supported right to the end of the year.
  

• The Euro hit fresh 18-month lows of 1.1777, before ending the New York session at 1.1815. In the absence of key economic data, some traders pointed towards the social unrest in Paris becoming a drag on the Euro. Other dismissed this point of view, claiming interest rate differentials are the overriding factor in the currency markets at present.
  

• The Japanese yen traded between JPY117.42-118.03 per US dollar after trading as low as JPY118.39 per US dollar earlier in the Asian trading session. The Japanese yen closed the New York session at JPY117.50. Yesterday in Japan saw Chief cabinet spokesman Abe say that Japan needs to change its fiscal settings including cutting spending, rather than lift the current 5% sales tax.
  

• The Pound fell to its lowest level in almost four weeks against the dollar on Monday as the U.S. currency continued its broad-based climb higher, and after news of an unexpected fall in British factory output in September. The Pound was down half a percent against the dollar at $1.7411, having hit $1.7390 earlier, it’s lowest since October 12.
  

• The Aussie dollar fell to hit a new 12 month low of 0.7305, before recovering to close the New York session at 0.7335. The Reserve Bank released its quarterly Statement on Monetary Policy, which the market interpreted as a weakish tightening bias. This statement was viewed as neutral for the currency and failed to attract fresh buying to the market.

TECHNICAL COMMENTARY

• Euro – 1.1725

The Euro dollar has now broken last year’s low of 1.1762 recorded on Apr 26 2004. This now exposes 1.1588, the 38.2% retracement of the rally from the 0.8232 historic low to last years 1.3663 high. Initial resistance is located at 1.1762 (previous support), with 1.1871 taking on more significance as medium term resistance.

• Yen – 117.80

USD/JPY met its objective as it reached 118.43 (50% retracement of the 135.18 to 101.67 decline) and retraced. 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 – 1.7375

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),The Pound has now broken 1.7423, Oct 18 low, and support at 1.7391. The next key support is now found at the 1.7271 level. Resistance is now located at 1.7595, with major resistance at 1.7825.

• Aussie – 0.7290

Aussie continues its slide, with no support until 0.7238, the 61.8% retracement of the 0.7590 to 0.6773, Feb-June ’02 decline. Initial resistance is now located at 0.7365 (previous low), followed by 0.7440 and major resistance at 0.7520.