Australian FOREX Daily Outlook 01/07/2005

01/07/05 (03:00 GMT)

FOREX – Australian Dollar Market Summary

• Dollar ended largely unchanged against the Euro and the commodity bloc but rallied against the Pound and the Yen, from the day before as the stream of data releases and events had a neutral effect which in the end turned out to be an anti-climatic price action. The Fed stayed on predictable lines as they raised rates, kept their measured tone intact with hawkish connotations suggesting more rate hikes in months to come and remained optimistic on the direction of the economy. Earlier the Dollar slipped after a below par Chicago PMI reading and slightly weak Personal Income & Spending outcome. Oil prices dipped below the $57 mark with the rise in crude stockpiles still fresh in the market’s mind. All in all, Dollar’s fundamentals remain the best bet with positive sentiment behind it.

• Euro continues to hover within 1.20 as it was supported by technical factors and U.S. data bit on the weak side with Fed repeating its statement. But its main supportive factor was the fall in German unemployment while Economic Confidence across the zone improved. Also with ECB officials dismissing any rate cut options and rise in inflation supporting their stand, a major bearish issue for the Euro, i.e. prospect of rate cut in the near future, has subsided for now. Mixed technical interest continues at current levels with only a decisive break below 1.1970 to accelerate losses.

• Yen in the past 24 hours has seen Housing starts coming in much higher than expected, small Business confidence rising while this morning’s Tankan index for Large Manufacturers recording a healthy increase, Unemployment rate remains at a low level and Oil prices have eased back. All are positive factors for the Yen but it continues to remain on the backfoot with the market probably awaiting further concrete signs of pick up in the economy while the dismissal of Yuan revaluation move in the near term has removed a major Yen buying excuse.

• Pound has fallen by 450 points in the last 3 days as the weak data bug seems to have crossed the English Channel from Europe onto the U.K. The data has been so weak that there is a chance of the BoE cutting interest rates this month; this would have been unthinkable for most sections of the market a few months back. Q1 GDP was revised down more than estimated with consumer spending declining sharply; House prices continue to slide while the Consumer Confidence index declined more than expected with a fall in all sub indices. Thus, the Pound remains on a very weak footing with the market starting to price in a rate cut and the focus shifts to comments from the Monetary Policy Committee.

• Australian Dollar has slipped back below 0.76 but this morning’s data outcomes have been a bit positive with Retail Sales coming in much higher than expected while Building Approvals increased the second consecutive month. However it is not enough to lead the RBA to raise interest rates as they are expected to stay on hold or be reduced for the rest of the year, thus with its yield advantage set to reduce further and commodity prices slipping on profit taking, more losses could eventuate

EUR/USD – Yesterday’s low was 1.2042 and high was 1.2118.
The pair closed at 1.2087.

The pair remained within its recent range and held above 1.20 but it remains vulnerable for further losses. Mild support lies around the 1.2000 mark with a break below brings into focus the strong support zone of 1.1970-85 with decent buying interest around that region. A decisive break below could accelerate Euro’s losses with distance support around 1.1890. On the upside mild resistance exists in the 1.2125-40 zone followed by strong resistance in the 1.2205-20 zone with any break above 1.23 likely to lead to very strong selling interest.

Key resistance is seen at 1.2125 followed by 1.2205 while support starts at 1.1980 followed by 1.1910.

USD/JPY – Yesterday’s low was 110.00 and high was 110.97.
The pair closed at 110.78.

Yen has fallen further on concerns surrounding its economy’s direction and has broken above 111 with more losses likely with mild support seen around 111.45 followed by stronger resistance around 112 which holds decent selling interest. On the downside mild Dollar bids have now moved up to 110.25 with any break below targeting the 109.40-55 support zone which has very strong Dollar bid interest. 111 region holds mixed technical interest with volatile moves likely within the region.

Key Resistance is seen at 111.45 followed by 111.95 while support starts at 110.25 followed by 109.45.

GBP/USD – Yesterday’s low was 1.7871 and high was 1.8104.
The pair closed at 1.7897.

The Pound slipped sharply and losses continue unabated with many key support levels broken below. Mild support lies around 1.78 followed by very strong support in the 1.7730-45 zone which held well last September, a break below that region is likely to accelerate losses. On the upside resistance has moved down to 1.7955 with very strong resistance and selling interest on any moves towards the 1.8045-60 region. The market’s perception of the direction of U.K. interest rates will drive the pair.

Key Resistance is seen at 1.7955 followed by 1.8045 while support starts at 1.7800 followed by 1.7735.

AUD/USD – Yesterday’s low was 0.7592 and high was 0.7644.
The pair closed at 0.7611.

The Australian Dollar has weakened further as commodity prices slipped on profit taking and for now hovers around the pivot 0.7555 mark with a decisive break below likely to accelerate its losses. Decent buying interest lies around 0.75 but commodity price trends are eyed. On the upside the sentiment is turning against the Aussie with mild resistance having moved down to 0.7645 with very strong resistance and decent sized offers on any move above 0.77.

Key Resistance is seen at 0.7645 followed by 0.7705 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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