Australian FOREX Daily Oulook 28/09/2005

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28/09/05 (05:00 GMT)

• Dollar remained firm in spite of Consumer Confidence plummeting to its lowest level since October 2003 while month wise it was largest amount of decline in 15 years. Scenes of destruction caused by the Hurricane coupled with slow relief efforts and the subsequent sky rocketing of oil prices all added to dampening confidence at that stage and while conditions have improved since, oil prices are still firmly entrenched over $ 60 pb. But for now the market cannot see beyond the mouth watering prospect of high U.S. interest rates as each passing day, Fed members have been coming out with hawkish statements with Yellen the latest to express concern on inflation and need for further hiking. It remains to be seen if this decline in consumer confidence and high oil prices will dent the recent pick up seen in consumer spending.

• Euro continues to find bottom picking bid interest just below 1.20 but also remains vulnerable for further acceleration of losses as momentum is in the Dollar’s favour. Better than expected data from the zone also helped in stiffening its losses with German IFO business climate index inching higher. However, the responses were before and after the elections and with the political impasse still continuing, confidence could decline sharply next month. Meanwhile a weaker Euro continues to help in boosting exports with the zone’s surplus revised higher as a result while money supply also inched higher. It remains to be seen if some sort of compromise, which is sorely needed for the economy’s recovery, by the two parties in Germany in today’s meeting.
  

• Yen has fallen further against the Dollar and on its crosses as well since interest rates are the current main theme in the market, needless to say Japan’s zero interest rates in face off the U.S. to keep raising rates while other high yielders staying on hold, makes it less attractive in comparison. The market is also awaiting key data in the form of Retail trade, employment, inflation and industrial production in the next two days to gauge the resilience of the Japanese economy to the high oil and energy prices. We have seen in the last few months more BoJ members hinting towards the end of its ultra loose monetary policy stance with board member Suda, the latest who expects inflation to rise gradually by the end of the year.

• Pound was helped by better than expected data and has managed to inch back towards 1.77 as business investment growth for the second quarter was revised up substantially and is likely to lead to an upward revision of Q2 GDP results released today. For now consumer spending remains on the weak side as highlighted by the decline in credit lending, but in keeping in line with the trend of mixed data mortgage approvals rose as house buyers are coming back into the fore after the recent rate cut. It is a question of, if the recovery in the business sector could soon be translated to increase in consumer spending.

• Australian Dollar has been the most resilient currency in face of Dollar’s onslaught and has performed well on its crosses. Commodity prices and demand remain firm for now and its interest rates are set to remain at 5.5% well into next year as wage and inflationary pressure are likely to prevent any rate cut sort to spur consumer spending. Also unlike New Zealand, the Aussie’s trade balance and growth outlook are in better shape.

FOREX (Foreign Exchange) Key Intra-Day Pivot levels

EUR/USD – Yesterday’s low was 1.1978 and high was 1.2082.
The pair closed at 1.2011.

The pair has finally broken decisively below the key 1.21 mark after nearly two months and losses have accelerated towards 1.20 with decent bid interest continuing below it, for now. A clear break below has the potential to further accelerate losses towards the strong support mark of 1.1910 with decent bid interest down till 1.890. A break below will shift the Euro in deep negative territory and make it very hard to pare back its losses. On the upside, mild resistance has now moved down to the 1.2090-1.2110 region with a break above to bring mixed interest till the 1.2215 mark where resistance is very strong and gains are expected to be capped around it.

Key resistance is seen at 1.2090 followed by 1.2215 while support starts at 1.1980 followed by 1.1910.

USD/JPY – Yesterday’s low was 112.34 and high was 113.50.

The pair closed at 113.30.

The pair made significant gains and managed to go towards its lowest levels for the year and having the potential to go towards 114 but gains would not be quick and a far bit of resistance is expected. A break above this crucial mark would shift the Yen in deep negative territory and would make it hard for the Yen to pare back its losses. On the downside, immediate bid interest has moved up to 112.60 with a break below to lead to strong resistance around 112 with bids lined all the way down to 111. Only a break below 11 would shift the Yen back in neutral territory.

Key Resistance is seen at 113.55 followed by 114.00 while support starts at 112.60 followed by 111.95

GBP/USD – Yesterday’s low was 1.7639 and high was 1.7783.
The pair closed at 1.7664.

The pair has broken down with key support levels breached and looks vulnerable for further losses. It needs to clear mild bottom picking bid interest seen just below 1.7680 while key support lies in the 1.7640-55 region and the loss of this area will further accelerate losses till distant strong support is seen around 1.7570. On the upside, immediate resistance as moved down to 1.7805 with mild offers lined up to 1.79 with a break above to lead to strong resistance around 1.7910. Any prospective gains are expected top capped below the 1.80 mark.

Key Resistance is seen at 1.7805 followed by 1.7910 while support starts at 1.7655 followed by 1.7570.

AUD/USD – Yesterday’s low was 0.7529 and high was 0.7569.
The pair closed at 0.7546.

The Australian Dollaris locked between conflicting fundamental factors and has immediate bottom picking bid interest just below 0.75 followed by strong support in the 0.7470-85 region. A clear break below this region is likely to accelerate losses towards the key support levels at 0.7420 followed by the crucial 0.7380 mark which has held well for the past year. On the upside, immediate resistance has moved down to 0.7595 with any move above to face selling orders lined up to 0.77 where resistance is very strong.

Key Resistance is seen at 0.7595 followed by 0.7655 while support starts at 0.7475 followed by 0.7420.

Kunal Sharma

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

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