Australian FOREX Daily Outlook 08/06/2005

08/06/05 (02:00 GMT)

• Dollar remained under mild pressure and weakened against high yield currencies as Greenspan hinted that the Fed might soon pause on rates and unlike expectations in many quarters he did not refute Fisher’s claims that the Fed may be nearing the end of its tightening cycle. Consumer Credit data came in much lower than expected thus casting doubts on the maintenance of robust consumer spending. The only positive for the Greenback were the slight easing in oil prices with today’s inventory data expected to show ample stockpiles.

• Euro remained a bit directionless with decent selling orders on any move above 1.23 preventing any substantial gains on profit taking on Dollar longs, it is failing to benefit from the prospect of U.S. rates pausing as its own rates have even chances of remaining on hold or reducing, thus the Dollar’s yield advantage would be maintained against the Euro. The IMF thinks that the Zone might require a rate cut if the economy hasn’t recovered by Q3. Meanwhile, German Industrial Production came in much higher than expected largely due to cyclical rebound in the construction industry. For now, resistance lies around 1.2355.

• Yen stabilized as in spite of continuous chatter on the Yuan issue, no concrete steps in that direction are to be seen while a more than expected decline in household spending was a timely reminder that the economy is still not out of the woods yet. This morning’s bank lending data declined for the 89^th consecutive month as corporations continue to be skeptical to increase their debt. 106.45 is a pivot mark for the Yen with decent Dollar buying interest around it.

• Pound surged higher thanks to the market focusing on its high yield advantage rather than the slowdown in the economy. As of now, it seems that the Pound would still enjoy a 100 bps advantage over the Dollar on the likelihood of the U.S. raising rates twice and the U.K. reducing rates once by 25 bps. It is prone to exaggerated movements and its nearly 300 point rebound is merely position squaring ahead of crucial data release form both sides of the Atlantic in the next two days. Any foray above 1.8425 should cap its gains.

• Australian Dollar managed to break above 0.77 but has slipped back with RBA keeping rates on hold, amid an environment of slowing consumer spending and decline in manufacturing, thus leaving the Bank with no choice but to stay put. Also this morning’s home loans result has come in half the estimated outcome confirming the softening in the housing market. Having the highest interest rates in the developed world is taking its toll on companies in New Zealand as their spending has curbed significantly.

*Only key potential market moving data is mentioned, for a detailed Economic Calendar please click on the ‘Financial Calendar’ link on the web-site.

EUR/USD – Yesterday’s low was 1.2237 and high was 1.2318.
The pair closed at 1.2282.

Euro’s problems are much bigger than recent poor data for the U.S. and while the pair has stabilized due to the uncertainty around the Dollar, the Euro continues to fall on its crosses. For now mild resistance exists around 1.2320 followed by decent selling interest in the 1.2355-70 zone. On the downside mild support exists around 1.2220 with any break below 1.22 likely to bring into focus the strong support zone of 1.2155-70. 1.22 region has mixed technical interest and should keep the pair directionless within it.

Key resistance is seen at 1.2325 followed by 1.2375 while support starts at 1.2230 followed by 1.2175.

USD/JPY – Yesterday’s low was 106.49 and high was 106.99.
The pair closed at 106.59.

The pair is at a crucial at a stage and is hovering around 106.50; this is a pivot mark with a decisive break below that mark likely to accelerate gains for the Yen with decent Dollar buying orders around that mark. With the next decent support mark around 105.85 but Japanese data is expected to be weak which could prevent it to break below 106. On the upside mild resistance exists around 107.25 followed by strong resistance around the pivot mark of 107.75.

Key Resistance is seen at 107.25 followed by 107.75 while support starts at 106.45 followed by 105.85.

GBP/USD – Yesterday’s low was 1.8203 and high was 1.8354.
The pair closed at 1.8344.

The pair is prone to exaggerated movements and broke through some key resistance levels with mild resistance in the 1.8355-70 zone followed by very strong resistance in the 1.8425-40 zone with decent selling interest on any break above 1.84. On the downside mild support exists in the 1.8255-70 zone with a break below bringing in decent buying interest around 1.82.

Key Resistance is seen at 1.8375 followed by 1.8440 while support starts at 1.8255 followed by 1.8195.

AUD/USD – Yesterday’s low was 0.7635 and high was 0.7697.
The pair closed at 0.7685.

The Australian Dollar has inched higher more than expected largely due to big fund buying who are disillusioned with the Dollar and the Euro. Commodity prices have also surged higher which helped the Aussie clear the strong resistance mark at 0.7640. However it hasn’t broken decisively higher with mild resistance around 0.7685 followed by strong resistance around 0.7725. On the downside mixed sentiment for Dollar is leading to support around 0.76 for the Aussie.

Key Resistance is seen at 0.7685 followed by 0.7725 while support starts at 0.7605. followed by 0.7555.

Kunal Sharma
Forex Analyst

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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