Australian FOREX Daily Oulook 20/10/2005

MARKET SUMMARY – 20/10/05

• The Dollar hit multi-month highs against major currencies in early European trader. This move was purely stop-loss driven as it came well before any US economic data release. The dollar then retreated across the board despite a barrage of hawkish comments by Federal Reserve officials. The majors continued to advance against the dollar disregarding stronger than expected US housing and the Beige Book which indicated that business activity continues to increase. US housing starts rose by 3.4% in September, above forecasts that centered on a fall of 1.9 %. The release of the Federal Reserve Bank’s Beige book confirmed the recent rhetoric coming from the central bank. However, judging by the bond and currency market response, the market is beginning to question this theme. Sentiment in the market is starting to develop that the Feds tightening policy could be closer to its target than initially thought. The market now moves its attention to the key releases of the leading indicators and Philadelphia Fed survey out later today.
  

• Euro lifted from its lows of 1.1876 in early London to end the day near its highs of 1.2000. Large stop-losses were triggered on the break of 1.1900, which took Euro to the low.Apparently a large Asian central bank bought good size Euro taking it back up to 1.1920 and catching the market short. Also assisting Euro was the firmer than expected industrial production. It rose a solid 0.8% over the month, while consensus had centered on a decline of 0.1%. Annual growth jumped to 2.6%, from a revised 0.6% in July.
  

• The Japanese yen lifted from a 25 month low of JPY116 per US dollar to end near the days highs of JPY115.25. With no major data releases in Japan yesterday or today, the currency continues to take its lead from the States. The currency looks to be trading technically at present respecting key support at 115.00 level.
  

• The Pound traded down to test previous yesterday’s lows at 1.7425 before recovering and trading to a high of 1.7650. The minutes from the Bank of England’s October 6 MPC meeting showed committee members voted unanimously (9-0) for no change to the key policy rate. The committee offered a mixed message, amongst the comments that could be looked upon as hawkish the minutes reiterated that the declaration in output could possibly be less pronounced that the data indicates. On the dovish side, the Bank said that some members felt that the downside risks to demand had increased. Tomorrow sees the release of September retail sales data.
  

• Aussie moved to a low of .7439 in early London trade before recovering to .7510 in the New York Session. With no major data releases this week in Australia the currency will continue to take its direction from US data releases.

TECHNICAL COMMENTARY

• Euro – 1.1970

The importance of they key 1.1870 level was highlighted overnight was a sharp recovery. However the market will need to take out minor resistance at 1.2040 firstly, followed by major resistance at 1.2160 (Fibonacci retracement of the September-October), to confirm a medium term bottom is in place.

• Yen – 115.85

As mentioned yesterday resistance at 115.80/116.00 level proved to be important as market rejected this level first up. Equally as impressive was the way the level at 115.00 acted as support. Technical indicators suggest USD/JPY needs a period of consolidation between 115.00-116.00 prior to next impulsive move. Medium term support is seen at 114.10.

• Pound – 1.7605

For the Sterling downtrend to remain intact this must be a corrective recover with rallies seen to be capped at first resistance level of 1.7650 followed by major resistance at 1.7730. Support at 1.7425 has more credibility with another good bounce off that level overnight. Major support remains intact at 1.7275.

• Aussie – 0.7490

With another sharp bounce off .7440 this level gains some significance and will be seen as minor support followed by major support at .7369 which the July low. First resistance is seen at .7530 which is the break of the triangle followed by major resistance at .7610 and more importantly .7650.