Australian FOREX Daily Outlook 21/07/2005

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21/07/05 (05:00 GMT)

FOREX – Australian Dollar Market Summary

• Dollar rallied and then crashed across the board due to conflicting interpretations of Greenspan’s testimony. As expected he was very optimistic on the growth outlook of the economy and expects conditions to further improve in the months to come. However his speech was on repeated lines and close scrutiny of his words highlighted a few risks like conundrum of long term interest rates remaining low. He also expects inflation to remain well contained which might change the Feds stance once it reaches the important 4% mark. Also the dollars inability to break key technical barriers created another excuse to take profits, as well as rife speculation of Yuan revaluation next month, might deter some quarters on being overtly bullish on the Greenback. But as of now sentiment remains in its favour.

• Euro benefited the most on Dollars sharp downturn as its recent strong fundamentals especially the robust German ZEW surveys lend it some degree of support. The trade balance in the zone declined in spite of a substantial pick up in exports, which were offset by the spike in high import costs of oil and the maintenance of oil prices at such high levels which poses unforeseen risks for business’s in months to come. Sentiment is still against it and it remains vulnerable for further losses as long as it stays below the 1.23 mark.

• Yen is on the weakest footing compared to other currencies and has experienced broad based losses with fundamentals showing no signs of pickup. But it was helped by general profit taking on the dollar as well as the strong pivot resistance mark of 114. Earlier convenience store sales declined yet another month with consumer spending as well as confidence remaining in a sluggish state. While this mornings trade balance shrunk more than expected as global demand for exports remains low.

• Pound experienced volatile exaggeratory moves after a surprising outcome in BoE’s meeting minutes. With expectations of not more than two members voting for a rate cut the market was shocked when 4 out of 9 members were in favour of reduction in interest rates. And given further signs of slow down in the economy since then, especially in the housing market, the chances of a rate cut in next month’s meeting have increased ten fold. Although it managed t0 rebound due to profit taking on dollar longs, sell on rallies should continue to be the market’s favoured strategy.

• Australian Dollar’s impressive resilience in spite of general dollar strength in the last few days was rewarded and it rallied strongly towards 0.76. With fears of a slow down in the Chinese economy subsiding after strong local data, hopes of maintenance of a healthy demand of Aussie exports has rekindled. Direction is derived from Dollar’s direction with Aussie inflation data eyed next week.

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FOREX (Foreign Exchange) Technical Analysis

EUR/USD – Yesterday’s low was 1.1996 and high was 1.2186.
The pair closed at 1.2142.

The Euro for the third consecutive day managed to rebound strongly after the dollar failed to break key support barriers yet again. Decent buying interest has emerged around the mid 119 region with the Feds meeting minutes eyed for further direction. Resistance around 1.22 is still holding firm and the pair has only managed o rally within the technically mixed region of 1.20-1.22. Any foray about 1.23 should lead to strong selling interest however a decisive break above that mark could shift intra-day momentum in the Euros favour. For the dollar a break below 1.1940 should bring into focus the recent strong pivot support around 1.1875, if it fails to break below the pair should continue to stay range bound.

Key resistance is seen at 1.2215 followed by 1.2305 while support starts at 1.2045 followed by 1.1940.

USD/JPY – Yesterday’s low was 112.45 and high was 113.71.
The pair closed at 112.78.

Yen like other majors experienced volatile moves but it has fallen on its crosses, the strong resistance around 114 has held firm. This mark is very crucial and dollar would find it hard to break above it, but if it does sentiment for the Yen would shift into deep negative territory. On the downside decent dollar bids have moved up to 112 with the break below likely to bring into focus very strong dollar bids 111.50. Japanese data continues to be on the weak side as direction is derived from Feds meeting minutes.

Key Resistance is seen at 113.50 followed by 114.05 while support starts at 112.15 followed by 111.50.

GBP/USD – Yesterday’s low was 1.7272 and high was 1.7468.
The pair closed at 1.7404.

The pair experienced volatile exaggeratory movements as it is prone to and went towards multi month lows. Bottom pickers led to strong buying interest on its break below 1.73 but resistance remains strong within the 1.75 region. Offers are lined all the way up to 1.76 with the break above which shifted the momentum in the Pounds favour. For now it has decent buying interest around the 1.7375 mark, any moves below that mark to bring into focus the strong support zone of 1.7305-20. US data is eyed for further direction.

Key Resistance is seen at 1.7505 followed by 1.7575 while support starts at 1.7375 followed by 1.7315.

AUD/USD – Yesterday’s low was 0.7502 and high was 0.7573.
The pair closed at 0.7562.

The Australian Dollar followed other majors and inched higher but the very strong offers above 0.76 have held firm so far. These orders are lined all the 0.77 and would make it very hard for the Aussie to break above this crucial mark. On the downside decent support has moved up to the 0.7505-20 region with the break below to bring into focus the very strong pivot support region of 0.7460-75, which has held firm in the last few weeks.

Key Resistance is seen at 0.7625 followed by 0.7655 while support starts at 0.7505. followed by 0.7460.

Kunal Sharma
Forex Analyst

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

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