Australian FOREX Daily Outlook 2/12/2005

MARKET SUMMARY – 02/12/05(03.00GMT)

• The Dollar lifted against Euro and Yen overnight after the ECB watered down expectations of further rate hikes. The Dollar weakened versus the commodity –currencies which rose against the greenback in response to firmer metals prices. US data was supportive for the dollar, with manufacturing ISM steady at firm levels and jobless claims better than expected. The PCE deflator was lower than expected as it rose by just 0.1% in October. The US ISM manufacturing index eased from 59.1 to 58.1 in November. This was close to the market expectation of 58.0. Overall then it was the familiar theme of strong data and benign inflation that has helped the dollar most of the year.In the US today, US non-farm payrolls are expected to resume their pre-hurricane trend in November. A strong monthly increase of 215,000 is expected.
  

• The Euro traded in a narrow range in London as the market waited for the ECB rate announcement. As expected the ECB raised rates by 25 basis points and the Euro actually fell. The Euro traded to a low of 1.1692 from a high of 1.1802. The reason for the fall was when ECB President Trichet said during his press conference that there was no plan for further tightening. Data released yesterday prior to the ECB announcement supported rate expectations, with the Euro area manufacturing PMI improving fractionally to 52.8 from 52.7.

  
  

• The Japanese yen continues to weaken versus the dollar and euro. The Japanese yen traded in a range of 119.69 to 120.70.EUR/JPY dipped initially when the ECB lifted rates, but eventually rose to a high of 141.55 as independent JPY weakness persisted.
  

• The Pound traded in a range of 1.7263 to 1.7341. Data out of the UK continues to disappoint, with the CIPS PMI falling to 51 from 51.6 and the CBI distribute trades survey showing retailers reporting their worst month on record in November. Short sterling implied yields moved lower on the data, retracing the move higher earlier in the week on upbeat comments

• The Aussie shrugged off a worse than expected current account deficit yesterday to rally versus the dollar. The Aussie rose of 0.7380 to 0.7434 and closed at 0.7415 in the New York session. Aussie continues to benefit from strong base metals and gold which soared to 23 year highs.

TECHNICAL COMMENTARY

• Euro – 1.1790

The Euro has slipped back into the range following Monday’s surge which fizzled ahead of the cluster of resistance around 1.1903 to 1.1915 and ahead of the 12-week trendline resistance that is today located at 1.1924. A break of the trendline would signal a potential medium term base. The underlying trend remains bearish with key support levels located at 1.1683, Nov 28 low and the more important 1.1644 low, Nov 15 which also marks the 2005 low thus far

• Yen – 120.50

While the market stays above 118.20 the overall bull trend remains intact. Fresh gains above119.95 exposes 120.76, the reactionary high from July 2003 and 121.89, another reaction high recorded in March 2003

• Pound – 1.7310

Sterling recovery from Monday’s 1.7048 low looks promising however for further upside the market must breach 1.7342 which opens the door for 1.7476. A relapse below 1.7048 would be necessary to undermine the developing positive tone and instead reinstate the broader decline.

• Aussie – 0.7430

A break above Monday’s 0.7456 high expected to yield an extension towards 0.7474, the 61.8% retracement of the 0.7605 to 0.7261 decline, but with scope for 0.7524, the 76.4% retracement thereafter. Weakness below Monday’s 0.7320 low required to undermine the current positive tone.