Australian FOREX Daily Outlook 14/07/2005

14/07/05 (06:00 GMT)

• Dollar got an unexpected boost by the lower than estimated trade deficit data, while the budget deficit forecasts were revised down. However the result was not a reflection of the current environment, as oil prices had eased back in May which helped reduce the import costs. Prices have spiked since then and a stronger dollar could lead to a decline in exports and with the Chinese trade surplus rising steadily, deficit should widen next month. But for now the focus shifts to today’s inflation and retail sales data which should be dollar positive. Also supporting the dollar were comments by Fed’s Santomero who was a bit hawkish when he stated that US consumers can weather higher interest rates.

• Euro slipped by more than 150 points as positive US data, weak data from the Zone as well as very strong resistance around 1.23 made enough reasons to sell the Euro. While French CPI was in line with expectations due to high oil prices, Italian industrial production declined more than expected as the economy continues to struggle due to high prices and low domestic demand. Inflation from across the zone should remain high but sluggish economic conditions persist which could prove detrimental in months to come. GDP should remain unrevised with main focus on today’s US data.

• Yen like other majors slipped back as well with the easing of oil prices being offset by below par Japanese data. Industrial production declined more than expected due to high oil costs stiffening global growth which translates to less demand for durable goods. This makes domestic demand even more important for the economy to stay on its slow recovery path. However the economy continues to project mixed signals with the direction unclear. For now mild dollar bids remain on any foray below 111.50.

• Pound pared back most of its gains as the focus shifted back to fundamentals and apart from positive U.S. data, the below par UK employment data weighed in on the Pound. Unemployment rate increased as low consumer spending is leading companies to cut costs; this was also reflected in average earnings of workers. In spite of substantial increase in inflation the fact remains that it is very likely in a month UK interest rates could be reduced by 25bps while US rates could increase by the same. For now bottom pickers are keeping it above the 1.7555 support mark with US data eyed for direction.

• Australian Dollar took cue from other majors and slipped back but decent support has emerged around the 0.7475 mark and it is hovering around 0.75. Direction remains a bit mixed with U.S. data eyed but any foray towards 0.76 should intensify selling interest with importers offers lined around that mark. The Kiwi dollar experienced some volatile moves after the spike in inflation but business and consumer confidence continues to climb and it remains vulnerable for further losses.

EUR/USD – Yesterday’s low was 1.2064 and high was 1.2220.
The pair closed at 1.2077.

The better than expected US data coupled with very strong technical resistance around the 1.23 mark led to the heavy sell off for the Euro. The 1.21-1.2250 region has mixed technical interest and movements within that region are dependant on fundamentals. For now mild support lies in the 1.1990-1.2010 zone, a decisive break below this region could accelerate losses for the Euro. However very strong support lies around the pivot mark of 1.1875 and the Euro would continue to remain under pressure as long as it stays below the 1.23 mark. Key drivers for today are US inflation and retails sales data.

Key resistance is seen at 1.2155 followed by 1.2240 while support starts at 1.1990 followed by 1.1875

USD/JPY – Yesterday’s low was 110.98 and high was 112.26.
The pair closed at 112.04.

The pair is within the technically mixed interest region of 111.55-112.25, mild dollar bids lied below 111.40 with the break below likely to bring into focus the strong support zone at 110.90-111.05. It has also been influenced by intra day oil price movements with today’s US data to drive this pair. A decisive break above 112.25 resistance mark could lead to moves towards 112.75 where strong resistance exists. The pair is likely to stay range bound within the mixed interest region.

Key Resistance is seen at 112.40 followed by 112.95 while support starts at 111.50 followed by 110.80.

GBP/USD – Yesterday’s low was 1.7525 and high was 1.7753.
The pair closed at 1.7605.

The pair is prone to exaggeratory movements and the dollar managed to pare back most of its losses as strong resistance for the Pound within the 1.77 region as well as positive US data led to the sell off for this pair. Immediate support is seen around 1.7555 with the break below likely to accelerate losses towards the 1.7480-95 support zone. The pound is likely to break below this region if US data is positive, but bottom pickers are likely to come up on any foray below 1.74. On the upside selling interest should increase on any break above 1.78.

Key Resistance is seen at 1.7725 followed by 1.7790 while support starts at 1.7555 followed by 1.7480.

AUD/USD – Yesterday’s low was 0.7470 and high was 0.7562.
The pair closed at 0.7488.

The Australian Dollar slipped back with strong resistance in the 0.7555-70 zone with the 0.7475-0.7540 region having mixed technical interest. A decisive break below the 0.7450 support mark could accelerate its losses but very strong support exists in the 0.7390-0.7410 region. Commodity price movements apart from US data are also eyed for intra day movements and any break above the resistance zone could lead to moves towards 0.76 where strong offers exist.

Key Resistance is seen at 0.7555 followed by 0.7605 while support starts at 0.7445. followed by 0.7385.

Kunal Sharma
Forex Analyst

Easy Forex Pty Ltd. (Australia)
E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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