Australian FOREX Daily Outlook 7/12/2005

MARKET SUMMARY – 07/12/05(03.00GMT)

• The Dollar weakened slightly against the major currencies overnight as it failed to react to the latest economic data. US sharemarkets rose after stronger-than-expected productivity data eased inflationary concerns. US non-farm productivity for the September quarter was revised higher to 4.7% from the earlier reported 4.1%. The reason behind the increase in productivity was a fall in growth in hours worked (up 1% versus 2.2% the previous quarter). Looking ahead there is no major economic data due out in the States today.
  

• The Euro traded at a narrow range of 1.1758 to 1.1805, before closing at 1.1785 in the New York session as traders focused on key technical levels. German industrial orders for October came in higher than expected and rose by 2% m/m versus market expectations of 0.5% m/m. This took Euroto test the resistance at 1.1800 levels, but immediately after reaching this point Euro dropped 50 pips. In other news, Germany’ Finance Minister Steinbrueck said that Germany could cope with a rate hike provided there are no further moves.
  

• The Japanese yen strengthened overnight from JPY121.25 per US dollar in the London session to JPY120.76 in the New York session. Yesterday in Japan, household spending for October rose by 2% y/y, slightly stronger than market expectations of 1.8% and it was the strongest y/y growth. The Nikkei has paused in its rally, following 3 consecutive days of gains to 5-year highs. In other news, Finance Minister Tanigaki said that recent FX moves were in line with fundamentals and that other G7 members were not concerned with the decline of JPY.
  

• The Pound was the big mover overnight, initially trading up to a high of 1.7451 in the London session. UK Industrial production and Manufacturing production came much lower than expected and this causedthe sterling dropped approximately 100 pips breaking the support at 1.7400. The sterling traded down to a low of 1.7316 before closing the New York session at 1.7410. Industrial production for October fell by 1.0% m/m and -1.8% y/y against forecast for +0.2% and -0.3% respectively. Manufacturing output fell by 0.7% m/m, which was the largest monthly drop since March.
  

• The Aussie dollar rose from 0.7501 to 0.7542, before closing at 0.7535. Today in Australia, GDP data came out worse than expected sending the Aussie to a low of 0.7487. GDP grew 0.2% on quarter 3 versus market expectations for 0.5% growth.

TECHNICAL COMMENTARY

• Euro – 1.1775

Euro continues to trade in a volatile 1.1650 to 1.1850 range. The lack of follow-through on both ends has the market perplexed. A decisive break of 1.1680 would signal a test of the downside towards 1.1586, the 38.2% retracement of the broad 0.8227 to 0.3663 advance. A decisive break of the congestion zone at 1.1903 (Oct 3 low) to 1.1907 (50% retracement of 1.2170 to 1.1644) is required to put doubt in the ability of the short-term bear trend’s ability to eventually post a new trend low.

• Yen – 120.90

The dominant technical theme remains bullish, with a break to new highs maintaining the up-trend pattern of higher highs and higher lows. Accordingly, the market is looking for further gains towards 121.89, a reactionary high from Mar 31, 2003, en route to 122.38, the 61.8% retracement of the Jan ’02 to Jan ’05, 135.18 to 101.67 decline. The markets bullish bias remains with weakness beneath Nov 28’s formerly resistant 119.95 level required to threaten the current positive tone.

• Pound – 1.7385

The break above 1.7375 (38.2% retracement of the 1.7904 to 1.7048 decline) keeps a positive outlook for Sterling yield further gains towards 1.7476. Weakness below Nov 29’s 1.7144 low would be necessary to undermine the basing prospect from Nov 28’s 1.7048 low.

• Aussie – 0.7495

The break of Nov 28’s 0.7456 corrective high and trend-line resistance originating from Sep 22 reinforced the developing recovery prospect from Nov 14’s 0.7261 low. With momentum conditions continuing to provide a positive backdrop, the market looks for extended gains en route to 0.7526, the 76.4% retracement of the 0.7605 to 0.7261 decline and 0.7600, the peak from Oct 27 thereafter. The immediate outlook remains constructive, with a loss of Nov 30’s 0.7371 low, required to threaten our preferred bullish view.