Australian FOREX Daily Outlook 19/12/2005

MARKET SUMMARY – 19/12/05(03.00GMT)

• The Dollar continued to ease against the major currencies on Friday, but was stronger against the commodity based currencies. The dollar continues to suffer from market expectations that the Fed is close to the end of its tightening cycle and this is resulting in unwinding of long dollar positions. The US current account deficit narrowed in the September quarter, but this had no impact on the currency market. The narrowing was assisted in part by hurricane-related insurance claims and donations from abroad. The current account gap fell from US$197.8 billion to US$195.8 billion (6.2% of GDP) and below forecasts which were looking for a shortfall near US$205 billion.
  

• The Euro finished near the days highs of 1.2024 in the New York session, after trading up from 1.1940 in the London session. The Euro received some assistance from a better than expected IFO data. IFO business climate in Germany climbed to 99.6 in December from 97.8 in November in November, exceeding the expectation of 98.2. The survey is at a five year high, having risen fairly consistently since mid 2006. The export sector has been supported by the decline in the Euro over the past year. The survey is in line with recent strength in other Eurozone confidence indicators and bodes well for economic growth in the region.
  

• The Japanese yen traded in a range of 115.55 to 116.50, before closing the New York session at 115.80.The yen soared early last week and managed to hold onto its gains, especially against high-yielding currencies such as the New Zealand and Australian dollars, as investors have taken profits on bets against the Japanese currency and forced others to cover huge short positions.
  

• The Pound drifted to slightly stronger levels against both the dollar and the euro on Friday, in the absence of any major British data or other market-driving news. Sterling traded up from 1.7629 in the London session to a high of 1.7733, before closing at 1.7720 in New York.
  

• The Aussie continued to move low on Friday, down from 0.7485 in early London and traded to a low of 0.7420, before closing at 0.7445 in the New York session. Aussie suffered from further unwinding of long AUD/JPY positions combined with a decent correction in the gold price.

TECHNICAL COMMENTARY

• Euro – 1.2010

Price action remains on the choppy after the initial move higher earlier in the week, however the path remains open toward the minor resistance area at 1.2085 (Nov 2 reaction high). The next big resistance area is in the 1.2174 (Oct 27 reaction high) to 1.2208 (Oct 6 reaction high) to 1.2226 (61.8% of 1.2590 to 1.1638) area. For the near term, support remains in the 1.1924 (38.2% of the gains from 1.1702 thus far) to 1.1906 (Tuesday’s reaction low) area.

• Yen – 116.30

The massive slide from 121.41 extended a bit below 115.99 (Oct 19 high). Only a break of this support would bring up the possibility of a broader bear trend taking hold. For now, it would take a move above the 117.70 (reaction high from yesterday) to 117.96 (38.2% retracement of the slide since 121.41 thus far) to mark something more than just a relief rally unfolding.

• Pound – 1.7705

Sterling continues to consolidate between 1.7640 and 1.7740, only a move below the 1.7493 to 1.7462 congestion zone from late last week would put the rise from 1.7048 (Nov 28 low) on hold. Until then, keep focus on the 1.7901 (Oct 27 reaction high) to 1.7947 (61.8% retracement of the 1.8501 to 1.7052 decline).

• Aussie – 0.7460

The rally from 0.7261 (Nov 14 low) stalled just as it reached the 0.7572 (61.8% of 0.7762 to 0.7264) to 0.7601 (Oct 27 high) resistance band. The pullback from the 0.7580 recent high pushed through initial support at 0.7495 (61.8% of 0.7442 to 0.7580), and the 0.7458 (38.2% of 0.7261-0.7580) to 0.7442 (Dec 7 low). This could possible confirm a departure from this bull channel, targeting 0.7383 (61.8% of 0.7261 to 0.7580). Only a move above 0.7533 (61.8% since 0.7580) would relieve the current downward pressure.