Australian FOREX Daily Oulook 24/10/2005

MARKET SUMMARY – 20/10/05

• The Dollar rose against all major currencies on Friday. The move was largely a result of a buying spree that hit on the London close. What motivated the buying, remains unclear given no major data was released in the States on the Friday. Some dealers and analysts put the move down to further rhetoric by Federal Reserve officials anda major investment bank (Lehman Bros.) raising their target for the federal funds rate to 4.75 pct. Other dealers dismiss this rationale, pointing out that this kind of talk was unable to assist dollar earlier in the week, and they put the move down to position squaring ahead of the weekend. With no major economic data to be released in the States tonight, moves will be determined by large flows and any comments by officials.

• The Euro fell from 1.2057 in London to end the New York session near its lows of 1.1929. Most dealers say the move was flow driven while others point to comments by International Monetary Fund Chief Rodrigo Rato were thought to cause the move lower in Euro. He implied that the US Federal Reserve should continue to increase rates gradually while the European Central Bank should keep official rates on hold. Whatever the case the market notes the Euro is only 60 pips away from the key 1.1870 level, which the market seems determined to test once again, unless some significant change in sentiment occurs.
  

• The Japanese yen foretold the story of the dollar buying to come later in the session by holding the 115.00 level. The Japanese yen eased from JPY115.08 to end near the session’s low of JPY116.00. There was another good amount of offers fronting the all important 116.00 level and that capped the rally in USD/JPY. The market expects this range to continue with the risk to the topside level of 116.00 in USD/JPY given no major economic data to be released today.
  

• The Pound just fell short by approx. 10 pips of laying claim to the 1.78 handle in the London session, and then surrendered the 1.7700 handle to close around 1.7680 in New York. Data out of the UK contributed to the Pounds slide. Although the preliminary estimate of UK GDP data was in line with expectations, industrial production fell by 0.6 pct continuing the negative growth seen in the first half of the year. This indicates that economic growth in the UK continues to languish and will bear close watching in the near future to help gauge the risk of further rate cuts. At this stage it still seems unlikely in the near term, given hawkish comments from Bank of England officials.
  

• The Aussie fell from .7534 in early London to a low of .7467 in New York before closing at .7475. The talk of a rate increase by the RBA before year end has diminished only a day after making the rounds. Some AUD/NZD selling did contribute to Aussies woes as it’s largely expected that the RBNZ will deliver a rate hike next week.

TECHNICAL COMMENTARY

• Euro – 1.1930

Failure to break through 1.2070 resistance meant an attempt at the crucial 1.2160(Fibonacci retracement of the September-October) failed to materialize. The short term pattern is one of equal troughs and lower peaks which indicate selling pressure is more evident. With little support on the downside the market settled down 60 pips off the key 1.1870 level.

• Yen – 115.85

Consolidation continues between the levels of 115.00 on the downside at 116.00 on the topside. A close below or above these level respectively will indicate the next short term move. Major support remains at 114.10 on the downside while 117.00 will offer some resistance should 116.00 be taken out.

• Pound – 1.7660

The Sterling traded to high of 1.7790 and therefore failed to test the key resistance of 1.7815, which represents the 38.2% retracement of the 1.8501 to 1.7391 decline from September to October. The previous resistance level of 1.7650 will now act as minor support with 1.7425 acting as major support.

• Aussie – 0.7470

The rally stalled overnight failing to test the key .7543 resistance. Major resistance at .7650 is unlikely to be troubled in the short term. The .7440 level is the first support on the downside followed by major support at .7369 which is the July low.