Australian FOREX Daily Oulook 21/10/2005

MARKET SUMMARY – 20/10/05

• The Dollar weakened slightly against major currencies in overnight trade. Stronger than expected economic data in the US was not enough to boost the dollar. The Philadelphia Fed business index rebounded in October to 17.3 above Wall Street’s expectations of 10.0 and up from September’s 2.2. The US leading indicator fell in September to 0.7 pct. This was larger than the expected 0.5 pct forecasted by economists. As was widely expected, Hurricane Katrina had a negative impact. The consecutive falls over the past three months suggests the risk of slower growth in the near term. However growth is expected to rebound on the back of the rebuild, which will be large. Federal Reserve official Guynn continued the rhetoric, warning about higher inflationary risks, saying that was more of a concern than slowing growth. As they did on the previous day, the market ignored these comments given the reaction of the bond and currency markets. The market seems happy to wait for actual evidence of rising core inflation prior to responding any further. Looking forward, with no major data releases out tonight in the States the market will focus on technical levels and further Fed comments.
  

• The Euro had a slight mover lower in early London, reaching a low of 1.1950 before recovering to trade to a high of 1.2015 before closing at 1.2010. The initial move could was due to disappointing trade figures in Europe, but the move was short lived as stronger than expected consumer confidence lifted the currency. The market will now turn its focus to tonight’s French consumer spending and Italian August retail sales data.
  

• The Japanese yen lifted slightly from JPY115.60 early London trade to close the day at JPY115.35 in New York. The Japanese yen continued to strengthen further into the Asian session today reaching fresh highs of 115.01 versus the US dollar. Some traders indicate the strength in the yen is partly due to a sharp reduction of foreign bond purchases by Japanese investors.
  

• The Pound surged against the dollar and hit a one-month high of .6770 versus the Euro. The Pound rallied to a high of 1.7750 due mainly to strong retail sales data.UK retail sales rose by 0.7pct in September, better than the market expectations of 0.3pct. In addition the flat August result was revised up to 0.2pct. The market has already moved to price out a large chunk of the easing in rates that had earlier been factored in.

• The Aussie moved to a high of .7537 overnight after opening the London session around the .7505 level. The buying was prompted by article in the RBA Bulletin which was released yesterday. The implications were that the RBA will be less concerned about the side effects on the housing market through further rate hikes. This has many economists looking for a possible rate hike by year end.

TECHNICAL COMMENTARY

• Euro – 1.2040

The minor resistance was breached today at 1.2040 but further technical resistance at 1.2075 attracted sellers. Key resistance remains at 1.2160 and this is expected to attract selling pressure. On the downside the major support remains at the key 1.1870 level.

• Yen – 115.45

With daily studies displaying bearish divergence from overbought levels, the market seems cautious to buy dollyen aggressively above the 116.00 resistance level. The market sentiment is building for a corrective pullback to the major support at the 114.10 level. However support at 115.00 is still proving to be strong with the bounce off that level today.

• Pound – 1.7750

The Sterling rebounded well from oversold conditions on the RSI in early October. The previous resistance level of 1.7650 will now act as minor support with 1.7425 acting as major support. On the topside the market expects selling pressure at the first resistance level of 1.7815 followed by 1.7910.

• Aussie – 0.7510

The recent sell off to .7443 has produced a hammer pattern and this is reinforced by bullish divergence from oversold levels which caused the rally. The rally stalled today at the important resistance level of .7543. Many analysts are suggesting a daily close above this level would suggest a further rally to major resistance at .7650. Downside support remains at .7440 followed by major support at .7370.