Australian FOREX Daily Outlook 04/07/2005

04/07/05 (03:00 GMT)

• Dollar rallied across the board and it finally decisively broke key technical barriers, after threatening to do so for weeks. The major catalyst for this rally were stronger than expected numbers in the ISM Manufacturing survey which proved a welcome breather given recent softness in this sector and was the only sore point in the growth outlook for the economy. Also Consumer Confidence inched towards its best level this year with Current Conditions sub index going to its highest level in more than 4 years. Pre July 4^th holiday weekend also led to exaggerated moves as many traders didn’t want to miss the boat of Dollar strength while Australasian trading has seen the Dollar strengthen further.
  

• Euro finally caved into the Dollar’s momentum and broke below 1.1950 and closing around that level. Ironically its weakness has come about in a week which has seen condition improve in the Zone with data picking up with Manufacturing PMI coming slightly higher than expected, making chances of a rate cut even milder. Unemployment also inched lower but at the same time U.S. fundamentals are clearly outperforming which continues to keep Euro on the backfoot.
  

• Yen again found itself 100 points down after the end of another trading day due to Dollar’s strong momentum with last few days of promising Japanese data results largely ignored by the market. The important Tankan surveys showed an improvement in business sentiment among large & small Manufacturers as well as non- manufacturers. The results of these surveys are very significant and Yen positive even if it hasn’t reflected in the price action. It is the market’s way of compensating for going long on the Yen on the prospect of Yuan revaluation which has subsided for the time being.
  

• Pound fell by over 200 more points largely due to fears of an imminent rate cut decision by BoE in next month’s meeting but some quarters believe it could happen as early this week’s meeting. Thus with its yield advantage set to reduce significantly, the slight rebound in the manufacturing sector had no impact and was ignored by the market. It has been a bit oversold in the short term and could witness a relief rally if rates stay on hold.
  

• Australian Dollar slipped by 100 points breaking below 0.75 before stabilizing above it as like other majors it to succumbed to the broad Dollar pressure. The sharp sell off in Commodity prices also weighed in against it with the higher than expected result in Retail sales and pick up in Building approvals. Like the U.K., the focus is on interest rates with RBA to remain on hold this week.

EUR/USD – Yesterday’s low was 1.1939 and high was 1.2104.
The pair closed at 1.1957.

The pair has finally broken decisively below 1.20 but direction remains mixed from here on with thin trading due to holiday in the U.S. Some profit taking might push the Euro back above 1.20 with mild resistance around 1.2045 with any moves above 1.21 likely to lead to decent selling interest. On the downside mild support lies around 1.1905 with a break below likely to accelerate its losses with 1.1820 the next distant support mark. Patchy trading is likely today and the pair could be range bound if it can stay above 1.19.

Key resistance is seen at 1.2045 followed by 1.2125 while support starts at 1.1905 followed by 1.1820.

USD/JPY – Yesterday’s low was 110.60 and high was 111.78.
The pair closed at 111.77.

Yen has bowed down to the general rally by the Greenback and remains on the backfoot and is close to the pivot 111.95-112.20 resistance zone. A break above would lead the Yen to its lowest level in a year. A break above leads to the 112.75 resistance mark with a break above likely to accelerate its losses. On the downside, mild support lies around 110.90 with decent buying interest having moved up to any break below 110.50.

Key Resistance is seen at 112.25 followed by 112.75 while support starts at 110.85 followed by 110.45.

GBP/USD – Yesterday’s low was 1.7671 and high was 1.7910.
The pair closed at 1.7678.

The Pound slipped sharply and losses continue unabated with many key support levels broken below. Sentiment should remain in deep negative territory till the BoE interest rate meeting. It is a bit oversold in short term and could move back above 1.77 with mild resistance around 1.1725. The pair is prone to exaggerated movements and a break above 1.78 could lead to gains towards 1.79 where resistance is strong and decent offers exist. On the downside, 1.7575-90 is a crucial support zone with a decisive break below to send the Pound to its lowest level in a year which follows resistance around 1.7515.

Key Resistance is seen at 1.7725 followed by 1.7855 while support starts at 1.7575 followed by 1.7515.

AUD/USD – Yesterday’s low was 0.7495 and high was 0.7617.
The pair closed at 0.7515.

The Australian Dollar has taken cue from the sharp fall in commodity prices and has broken below key support levels but second support mark around 0.7490 has held well for now. A break below targets the pivot 0.7435-50 region which holds strong support and a decisive break below could accelerate losses for the Euro. On the upside, mild resistance lies around 0.7575 followed by resistance in the 0.7625-40 zone.

Key Resistance is seen at 0.7575 followed by 0.7645 while support starts at 0.7485 followed by 0.7435.

Kunal Sharma
Forex Analyst

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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