Australian FOREX Daily Oulook 19/10/2005

MARKET SUMMARY

• Dollar firmed against all the majors following the better than expected US producer price index. The US producer price index rose by 1.9pct in September, the largest rise in 15 years.The initial move was quite sharp as market bought dollars against all majors, however on closer examination the data showed that the core finished goods PPI rose by 0.3% and was only slightly higher than consensus of 0.2%. This brought about some profit taking and lifted the majors to finish the session only slightly down against the dollar. Other positives for the dollar include comments by Federal Reserve president Janet Yellen who pointed to further rate hikes. The news that Hurricane Wilma will miss key US oil installations in the Gulf of Mexico also assisted the dollar.
  

• Euro was sold down to a low of 1.1915 after the US producer price index but recovered to close the New York session at 1.1960. Rumored bids by Central banks and further examination of economic data, showed number to be not as strong as initial indication sparked the short-covering. The 1.1870/1.1900 area still looms as major support level for Euro, however current market sentiment indicates another test of this level soon.
  

• Yen started its slide against the dollar in the Asian session yesterday as it broke above key resistance at 115.00. The Japanese yen continued its slide in London and New York, falling to a 2 year low of 115.92 per US dollar after the US economic data, before recovering to close the session at 115.60. Comments by BOJ deputy governor Iwata, that the central bank would maintain its quantitative easing policy for now, will see Japanese investors demand for greenback continue as the chase high yielding foreign bonds.
  

• Pound also had a reactive move lower after the US economic data towards 1.7425 before recovering to close at 1.7485. The market will pay close attention to the Bank of England Monetary Policy Minutes due out today, given question marks over the state of the UK economy and expectations of another rate cut before year end.
  

• Aussie recovered from its initial move to 0.7447 to close the session at 0.7480. The 0.7400 to .7450 area is a critical long term support area as this has been the bottom end of the trading range for almost a year. Similar to the sentiment in Euro, the market seems determined to test this level in the very near term. With no significant data out in Australia this week, the currency will continue to take its direction from data out in the States.

Technical Levels

• Euro – 1.1930

With the downtrend developing nicely the market looks for resistance at 1.2040 to contain any recovery in the short-term. The major resistance is seen at 1.2160 which is almost flush with the Fibonacci retracement of the September-October sell off. The market is poised to test the key July double bottom at 1.1871. A daily close below this level would suggest a test of longer term support at 1.1762.

• Yen – 115.85

With break above 115.00 confirmed, the market looks for this level to now act as short-term support with next support at 114.10. Resistance at 115.80 has been breached however market will look for a close above this level to signal a possible move to 116.80/117.00.

• Pound – 1.7460

Downtrend continues to develop nicely &amp resistance is now found at 1.7575 and beyond that at 1.7650. Minor support is seen at yesterday’s low of 1.7425 with the target of the downtrend being 1.7275.

• Aussie – .7470

After months of consolidation aussie broke the triangle base at .7530 and this will now act as resistance in the short-term with .7610 and .7650 being major resistance. Market focuses on support at .7369 which is the July low.