Australian FOREX Daily Outlook 12/12/2005

MARKET SUMMARY – 12/12/05(03.00GMT)

• The Dollar traded down against the major currencies on Friday night despite stronger than expected US consumer sentiment data. The University of Michigan preliminary hearing was posted at 88.7 for December, up from 81.6 the previous month and above the expectation of 85.0. The level is now close to the levels seen before the US hurricanes hit. The US consumer continues to be supported by the strong labour market and mortgage rates that remain low on an historical basis. In other markets, US treasuries eased as traders squared positions ahead of Tuesday’s Federal Reserve meeting. US sharemarkets posted modest gains as investors were comforted by a 2% fall in the oil price. Crude oil was lower as investors took profit ahead of the OPEC oil ministers meeting.
  

• The Euro traded in a range of 1.1767 to 1.1835.Weak French industrial production figures, where industrial output for October fell 2.5%, against expectations of 0.2% increase.This caused Euro to trade down from 1.1800 to 1.1769. This data could suggest that ECB will be cautious in hiking interest rates in the coming months. However, this was short-lived as Euro traded back above 1.1800 to close at 1.1805 in the New York session.
  

• The Japanese yen traded between 120.31 and 120.74, before closing at 120.55 in the New York session. On Friday, Japan unexpectedly revised down its economic growth rate but the change was largely due to a fall in inventory growth. Also on Friday, Finance Minister Tanigaki said that the BOJ was not going to end quantitative easing now and the government and the BOJ should work together to beat deflation.
  

• The Pound rallied from 1.7466 to a one-month high of 1.7564 against the dollar, helped by better-than-expected trade data. The sterling closed at 1.7535 in the New York session. Britain’s trade deficit narrowed to 4.55 billion pounds in October from a revised 5.6 billion the month before, and much less then the 5.3 billion, economist had anticipated. The trade data is broadly encouraging, and rise hopes that the net exports will support growth in the fourth quarter. UK PPI is due out later today with market expectations centered on -0.3% for output and flat for input.
  

• The Aussie traded in a range of 0.7491 and 0.7520 before closing at 0.7505 in the New York session. Aussie continues to benefit from gold rallying to fresh 24 year highs. In Australia tomorrow the market will pay close attention when RBA Governor Macfarlane speaks to ABE forecasting conference.

TECHNICAL COMMENTARY

• Euro – 1.1835

The month-long trading range continues to keep this pair trapped in tight ranges. For the near run, the recovery from the Dec 2 low at 1.1666 has room toward 1.1903 (Nov 28 high), but only a move above there would put the case for an eventual downside move on hold. On the flipside, a break of 1.1760 (61.8% of the 1.1702 to 1.1853 rally) would likely fuel a move toward the lower end of the trading, with supports there at 1.1702 (Dec 7 low), 1.1666 (Dec 2 low) and 1.1644 (Nov 15 low).

• Yen – 120.80

The correction from 121.41 came to within two pips of important support at 119.95. Only a sustained break of this area would put the case for at least one more new trend high within the developing bull trend on hold. Penetration of 120.86 (61.8% retracement of the decline from 121.41 thus far) would take the pressure off the underlying bull trend, clearing the path for a run at its 121.41 extreme and then the 121.89 reaction high from Mar 31, 2003.

• Pound – 1.7590

The break of 1.7577, the 61.8% retracement of the 1.7904, Oct 27 high to 1.7048, Nov 28 low, decline signals a possible move towards 1.7702, the 76.4% retracement of that same move. Near-term support comes in the form of a trend-line at 1.7363, with a relapse below Dec 12’s 1.7290 low minimally required to undermine our preferred bullish view.

• Aussie – 0.7510

Although downside follow-through thus far has been muted, the break of the formerly supportive 0.7450 level is weighing on the Aussie, with renewed gains beyond Tuesday’s 0.7545 high necessary to alleviate the near-term heavy tone.