Australian FOREX Daily Oulook 10/11/2005

MARKET SUMMARY – 10/11/05(03.00GMT)

• The Dollar was very choppy in overnight trade, finishing the session largely unchanged against most of the major currencies. Of interest overnight was Fed President Poole comments, he maintained a hawkish tone stating that risks to inflation are skewed to the upside. He said that the latest FOMC statement implies that there are rate hikes to come. The market is still focusing on the enhanced yield status of the dollar and the trade balance argument is not registering at the moment. The US trade deficit is expected to have widened further in September. In that context then, today’s trade balance is unlikely to be a major market mover despite market expectations of a record deficit. The market expects a US$60.5 billion deficit, following the US$59.0 billion trade shortfall posted in August.
  

• The Euro traded in a 1.1718 to 1.1787 range, before heading into the New York close near 1.1770. Hawkish comments by ECB Council members continued overnight, despite the clamor from Eurozone finance ministers pleading the ECB take into account the impact of high energy prices and not be too quick to raise rates.The comments from the ECB officials did see Euribor yields move a little higher. However, concerns about the ongoing social unrest in France are hampering the Euros ability to benefit from improved interest rate support.
  

• The Japanese yen traded between JPY116.86 to 117.72 per US dollar before ending the New York session nearJPY117.50. Japan real GDP for Q3 is due out tomorrow, with market looking for 0.3% (QoQ seasonally adjusted). Should economist’s forecasts be correct this would be the fourth consecutive quarter of GDP growth.
  

• The Pound hit this week’s highs against a weaker EUR on Wednesday, but was knocked down briefly on the back of weaker than expected UK trade data. Britain‘s trade deficit with the rest of the world narrowed to 5.44 billion pounds in September from 5.9 pounds in August, compared with forecasts for a 5.3 billion pound deficit. The Pound strengthened as high as US$1.7461 against the USD. But it fell back down to US$$1.7386 before closing stronger at US$1.7430.
  

• The Aussie dollar was a good performer overnight, rising from 0.7316 to 0.7375 on the back of firmer precious metals prices. However, Australian employment fell for a second month in October, reinforcing expectations the central bank will keep interest rates unchanged next month. This saw the overnight gains unwound as Aussie weakened to 0.7325. Employment declined 19,800, the Australian Bureau of Statistics said in Sydney today. The median forecast of economists was for a 15,000 gain. The jobless rate rose to 5.2 percent from 5.1 percent in September.

TECHNICAL COMMENTARY

• Euro – 1.1760

Threatening bullish divergence is evident in the wake of yesterday’s 1.1709 low and while this level holds there is scope for further near-term gains. However, the cluster of levels between Monday’s 1.1833 high and the formerly supportive 1.1867 level is expected to attract selling. While 1.1867 remains intact, the down-trend remains, with renewed weakness below 1.1709 required for a test of 1.1588, the 38.2% retracement of the 0.8227 to 1.3663 advance.

• Yen – 117.75

There was a breach of Friday’s 117.14 low but the market did not register a close below that level. This indicates a possible retest of 118.43 and a break of this level is seen as the catalyst for an extension towards the psychological 120 level (and area of Aug 19, 2003 peak at 119.83).

• Pound – 1.7410

It is very important for support levels between Oct 12’s 1.7391 low and the year’s 1.7271 to hold if sterling is to make a recovery. First level on the topside is 1.7519, followed by 1.7595, with major resistance at 1.7825.

• Aussie – 0.7335

The recovery from Tuesday’s new trend low at 0.7286 continued overnight and Aussie traded to 0.7375. However, Aussie needs a clear break of the 0.7407 level to define a low. Renewed weakness below 0.7284 would reinstate the broader decline from Oct 27 and pave the way for an extension towards 0.7238, the 61.8% retracement of the 0.6773 to 0.7590 advance