Australian FOREX Daily Oulook 25/07/2005

25/07/05 (00:00 GMT)

• Dollar retraced all its losses on most majors as in the end the strong fundamentals for the Greenback throughout last week stood out as the decisive factor. It is widely acknowledged that the small revaluation step by China would be followed by some more steps in that direction, however, the timing of this, like other moves from China are unknown. Thus what is known for sure is the cyclical strength of the U.S. economy with the Fed remaining firm on its rate hike stance. The Yuan move be it bearish in the short to mid term period for the Greenback is generally very positive for the U.S. economy in the long run.

• Euro has slipped back into the 1.20 region and each failed attempt to break past the strong resistance region of 1.2250-1.23 increases its chances of further acceleration of losses. With the Yuan story digested by the market, the focus shifted back to fundamentals with is generally bearish for the Euro in current state of affairs. Industrial orders were much weaker than expected as the recent signs of recovery through higher exports have only been seen in Germany & France while the high import costs of oil and other raw materials are making it hard for manufacturers to balance costs.

• Yen has gone into neutral territory going back into the 111 region as the Yuan move has positives as well negative repercussions for it. However China hasn’t disclosed its chosen currencies in the basket or their percentage allocations, thus the Yen remains supported on expectations of a sizeable allocation. But poor fundamentals remain a stumbling block in its chances for a substantial rally with the Tertiary Index slipping against expectations. This indicates that in spite of recent pick up in domestic demand, overall trend remains mixed while exports are not showing signs of a pick up.

• Pound slipped broadly on the combination of Q2 GDP figures projecting its slowest annualized growth outcome in 12 years, any foray towards 1.76 remaining a sell region on the strong prospect of BoE to cut interest rates next month and another terrorist scare in London with the Police shooting a man while suspected bombers are still on the loose. The slowdown in the economy is now being seen in all sectors and pace of this slowdown has surprised many quarters with this week’s housing data eyed to watch for any signs of stabilization.

• Australian Dollar still basking in the positives of the Yuan move managed to close above 0.76 and looks in better shape compared to other currencies against the Greenback. The New Zealand Dollar has followed suit as well and got a timely boost as recent results point towards a sharp slowdown in the economy in the coming months but this action should boost demand for its exports which had declined due to its currency appreciating towards its 22 year highs.

EUR/USD – Friday’s low was 1.2053 and high was 1.2188.
The pair closed at 1.2067.

The pair has retraced all its gains post Yuan revaluation with strong offers above 1.2250 again proving too much to handle and a sell off ensued due to poor Euro fundamentals. Decent buying interest and support lies around 1.20 with a decisive break below likely to accelerate losses towards the 1.1930-45 support region. Bottom picking buying interest is seen around 1.19 a decisive break below could accelerate its losses which should bring into focus the crucial pivot support zone of 1.1850-75. The Euro has managed to make an impressive recovery from this level in the past and a break below would send it towards its lowest level in 2 years and would accelerate its losses with distant support around 1.1755. On the upside, 1.2145 holds immediate resistance with the 1.2145-1.2250 region holds mixed technical interest. Stronger resistance exists around the 1.2255 mark with decent offers lined up to 1.23.

Key resistance is seen at 1.2155 followed by 1.2245 while support starts at 1.1990 followed by 1.1875.

USD/JPY – Friday’s low was 110.50 and high was 111.44.
The pair closed at 111.32.

Yen has pared back half of its gains as prospects of Japanese intervention increase following the Yuan story. It has stabilized within the 111 region for now with decent dollar buying interest around 110.50 with the break below likely to bring into focus the very strong support zone at 109.75-90. Resistance has now moved down to 112.10-25 zone with any break above likely to lead to mild selling interest but further news from China is watched out for. A break above 113 could shift the momentum back in the dollars favour; conflicting moves are likely till the market comprehends the repercussions of China’s move.

Key Resistance is seen at 112.10 followed by 112.95 while support starts at 110.45 followed by 109.80.

GBP/USD – Friday’s low was 1.7355 and high was 1.7571.
The pair closed at 1.7384.

This pair remains in deep negative territory and is failing to reverse its losses with immediate support seen in the 1.7320-35 region with decent bottom picking buying interest around 1.73 with a break below likely to accelerate its losses and distant support is seen in the 1.7230-50 region. On the upside mild resistance lies in the 1.7475-90 zone with a break above bringing into focus the 1.7555 strong resistance mark with decent selling interest above. Only a break above this mark would shift intra day sentiment ib the Pounds losses otherwise it remains vulnerable for further losses.

Key Resistance is seen at 1.7475 followed by 1.7555 while support starts at 1.7335 followed by 1.7255.

AUD/USD – Friday’s low was 0.7631 and high was 0.7686.
The pair closed at 0.7631.

The Australian Dollar in spite of its impressive rally would struggle to break decisively deep into the 0.77 region with strong selling orders intensifying within the 0.7750-0.78 region. For now mild resistance exists in the 0.77 resistance mark with only a break above to shift intra day momentum in its favour. Support has moved up to the previous strong resistance mark of 0.7555 with buying interest continuing to remain firm on dips below 0.75, Aussie PPI data to provide early direction.

Key Resistance is seen at 0.7695 followed by 0.7745 while support starts at 0.7555. followed by 0.7490.

Kunal Sharma
Forex Analyst

Easy Forex Pty Ltd. (Australia)
E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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