Australian FOREX Daily Outlook 29/12/2005

MARKET SUMMARY – 29/12/05(03.00GMT)

• The Dollar rose against major currencies in thin, technically driven trade overnight although the solid consumer confidence reading provided fundamental support. US consumer confidence rose from 98.3 to 103.6 in December and ahead of market expectations of 101.8. US retails sales rose 4.5% in the week to December 24 compared with a year ago. US sharemarkets posted modest gains on Wednesday with a 2.9% rise in the oil price supporting energy stocks. In the US later today sees the release of, existing home sales, the Chicago purchasing managers index and weekly jobless claims data.
  

• The Euro traded above 1.1900 early in the session driven by technical traders however it traded back down to 1.1840 prior to the release of Germany’s GFK index. The Index came in higher than expected lifting the Euro 70pips to the highs of the day 1.1930. It was unable to sustain these gains and traded back down to close at 1.1840 in New York session.

• The Japanese yen traded in a narrow range until the U.S. indicator was published which gave support to the dollar and lifted USD/JPY from its lows of 117.00 to trade as high as 117.91. The pair closed in the New York session around the 117.75 level.

• The Pound continues to weaken against the dollar and overnight was the currency that experienced the strongest fall. With no data out, the sterling still seems to be suffering from data and news last week showed, firstly therecord U.K. Current account deficit and BoE December meeting which suggest possible in the near future.

• The Aussie dollar traded between 0.7268 and 0.7314, closing in New York near 0.7290.

TECHNICAL COMMENTARY

• Euro – 1.1850

The December volatility continues with the slide from 1.2062 moving into the 1.1818 (previous high from Dec 5) to 1.1800 (61.8% of 1.1638 to 1.2062) support zone. Hourly momentum indicators are attempting to form bullish divergences in oversold territory, a sign that the current 1.1801 low will be tough to break. But only a sustained move above the 1.1914 (reaction high) to 1.1962 (61.8% of 1.2062 to 1.1801) band of resistance would bring focus back to the 1.2062 Dec 14 high.

• Yen – 117.90

While it’s encouraging for long-term USD bulls that last week’s abrupt sell-off from the previous week’s 121.41 high on Dec 5 has thus far held the zone of support between 115.09, the 50% retracement of the advance from 108.76 to 121.41 and area of former resistance from July 20 at 113.73, renewed gains beyond Dec 15’s 117.70 high are minimally required at this stage to relieve the immediate bearish tone. In lieu of 117.70+ price action, and despite yesterday’s recovery from a 115.52 low, near-term gains are considered corrective, with a loss of 115.52 likely to expose 115.09 ahead of 113.73.

• Pound – 1.7225

The slide from 1.7810 continues to plod lower, slowly eroding through supports, keeping the pattern of lower lows and lower highs alive. The violation of the Dec 9 congestion from 1.7493 to 1.7462 has the door open toward the next and even more important support from 1.7339 (61.8% of 1.7048 to 1.7810) to 1.7290 (Dec 7 reaction low). A break of this range would reestablish the broader bear trend for an eventual drop below the 1.7048 Nov 28 low. Short-term resistance is at the recent 1.7594 reaction high.

• Aussie – 0.7295

The recent pummeling of this pair put it below support at 0.7383 (61.8% of 0.7261 to 0.7580) to 0.7372 (Nov 29 reaction low). That opened the door for a run toward 0.7325 (Nov 28 reaction low), and violation there leaves the pivotal 0.7261 (Nov 14 low) to 0.7242 (61.8% of 0.6781 to 0.7989) area as the next support. Only a move above 0.7419 (38.2% retracement of the declines from 0.7580 thus far) would point to a notable relief rally taking hold.