Australian FOREX Daily Oulook 21/11/2005

MARKET SUMMARY – 21/11/05(03.00GMT)

• The Dollar was weaker against most of the major currencies on Friday night, on the back of hawkish Euro comments by ECB President Trichet. This is all the market had to focus on in regards to the dollar, with no economic data released in the States.A combination of positive earnings news and lower oil prices boosted US stocks. The Dow Jones rose by 46 points while the NASDAQ rose by 7 points. Crude oil prices fell to fresh five-month lows on Friday. Unseasonably warm temperatures in the States allowed refiners to build up inventories, pushing oil prices lower. In the US, the leading index is released for October. Market consensus centres on a 0.8% gain in the month, following a decline of 0.7% in September.
  

• The Euro traded higher from 1.1664 in the London session to a high of 1.1794 before closing at 1.1770 in the New York session. The rally was fueled by ECB President Trichet comments, which suggest the Central Bank is poised to deliver a 25 basis point hike in December. Trichet said, “After two years and a half of maintaining interest rates at a level that is exceptionally and historically low, I consider that the Governing Council is ready to take the decision to move interest rates and modestly augment the present level of intervention rates in order to take into account the level of risks to price stability.””We would withdraw some of the accommodation that is in the present monetary policy stance while this policy will remain accommodative.” Trichet speaks to the EU parliament tonight and may wish to further steer near-term interest rate expectations.
  

• The Japanese yen was relatively stable against the dollar, with an overall range of 118.86 to 119.37, before closing at 119.15 in the New York session. Friday monetary policy meeting saw the Bank of Japan (BOJ) leave monetary policy unchanged, which was as expected. The market paid more attention to comments by BOJ Governor Fukui, who walked a fine line in his comments following the board meeting. Fukui repeated his assertion that risks of an end to the quantitative easing regime would rise in the new fiscal year, but also stressed that there is no policy rift between the BOJ and government, and that both share the same goal.
  

• The Pound fell to a two-year low against the dollar of 1.7100 and a one-month low against the EUR after a volatile trading session. The Pound recovered to close at 1.7155 in the New York session. While it is broadly expected that there would be rate hike in the US and Euro zone, the rate in UK is looking downward after softer economic data was released throughout the week.
  

• The Aussie dollar traded high from a low of 0.7300 to a high of 0.7343 in the New York session before closing at 0.7335. Aussie traded up on the back of a firmer Euro and was assisted by base metals which rose to multi-year highs.
  

TECHNICAL COMMENTARY

• Euro – 1.1775

The lack of momentum to the downside over the past week, finally gave way to some corrective action as Euro rallied to 1.1794 (reaction high from Nov 10). The next level on the topside is 1.1845 (38.2% retracement of the 1.2170 to 1.1644 decline). The first support level on the downside is 1.1680 followed closely by 1.1644 and a break of this level would signal a test of 1.1588 (38.2% retracement of the massive .8232 to 1.3663 rally).

• 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 118.30 low, but a loss of Nov 9’s 116.86 low is required to threaten the advance.

• Pound – 1.7163

Support is not located 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.