Australian FOREX Daily Oulook 17/11/2005

MARKET SUMMARY – 17/11/05(03.00GMT)

• The Dollar was slightly firmer against most major currencies overnight, following US Treasury data showing record net inflows into US assets in September. They posted at US$101.9 billion (record high), compared to expectations of US$70 billion. This suggests the US is having little trouble financing its current account deficit. The US CPI was also out overnight and showed a 0.2% rise in October, with Wall Street expecting a flat result. This brought annual CPI inflation to 4.3%. Core prices (excludes food and energy) rose in line with expectations of 0.2%. This suggests that the Federal Reserve will stay on track with its tightening bias for the next couple of months at least. US sharemarkets were slightly lower overnight following a rise in the price of crude oil. Gold was big mover overnight, rising US$10.1 to 479.1 an ounce on the back of safe haven buying. Looking ahead, the market will focus on US Housing starts and building permits as well as US Industrial production due out later today. The market is expecting 2.06 million for housing starts and expecting a rebound in industrial production of around 1%.
  

• The Euro was dragged down by cable in London trade to 1.1643, but managed to recover back to 1.1715. However New York sold Euro back down to 1.1680 where it closed, after the positive US economic data. The Eurozone CPI rose 0.3% in October, in line with market expectation. Annual CPI inflation fell to 2.5% from 2.6% a rate still well above the ECB’S 2% target. This data continues to suggest that the ECB will raise rates in the coming months.
  

• The Japanese yen weakened to JPY119.56 per US dollar but recovered slightly to close at JPY119.05. The key issue in the markets right now for the Japanese yen is whether the Bank of Japan (BOJ) can reassert its independence of the government. The market will pay close attention to BOJ Governor Fukui when he tomorrow following the end of the two-day BOJ board meeting.
  

• The Pound slid to its lowest in two years against the dollar and weakened versus the euro on Wednesday after a dovish inflation outlook from the Bank of England (BOE), which reopened the debate on UK interest rates. The Pound fell below its July low and finished at US$1.7170, hitting a 23-month low at US$1.7129 during the New York session. The BOE, in its quarterly inflation report, predicted British inflation is set to meet its 2.0 percent target in two years. The report was interpreted by the market as dovish, re-igniting a debate over the possibility of a UK interest rate cut. The report put a rate cut back on the agenda and the BOE will continue to watch data over the coming months.
  

• The Aussie initially fell to a low of 0.7280 in early trade, before rebounding to close at 0.7320 in the New York session. Yesterday saw the release of the wage price index, which measures hourly rates of pay. The WPI rose by 1 per cent in the September quarter, giving an annual increase of 4.2 per cent, the Bureau of Statistics said on Wednesday. This was in line with the market expectations.
  

TECHNICAL COMMENTARY

• Euro – 1.1670

The underlying downtrend in the Euro remains clearly intact however each new low has developed on the back of less and less momentum. A breach of the 1.1644 trend low would most likely see a test of the key 1.1588 area. Important resistance is located at 1.1773, the Nov 14 high where a break is minimally required to signal a short-term base.

• Yen – 119.10

The break to the highest levels seen since Aug ’03 reinforces the likelihood of extended gains towards 119.83, the high from Aug 19, 2003, then 120.73, the peak from Aug 1, 2003. Near-term support resides at yesterday’s 118.70 low, but a loss of Nov 9’s 116.86 low is required to threaten the advance.

• Pound – 1.7163

The move overnight took out supports at 1.7307 (38.2% of 1.3678-1.9550), 1.7270 (July 20 low), 1.7226 (1.7514-(1.7901-1.7613)). This leaves little support until 1.7091 which is relatively close to the psychological 1.7000. Topside resistance from the 1.7309 (Tuesday’s low) to 1.7392 (Tuesday’s high) congestion. This zone also contains the 61.8% retracement of the current leg down of the bear market from 1.7514 (Nov 10 high) at 1.7371.

• Aussie – 0.7310

Support is located at 0.7242 which marks the 61.8% retracement of the rally from 0.6781 (June 17, 2004 low) to 0.7989 (March 08, 2005 high). Short-term resistance is well defined at last Wednesday’s 0.7379 high, followed by 0.7393, the 38.2% retracement of the declines thus far from the Oct 27 0.7601 high.