FOREX Trading Australia Daily Outlook 12/05/2005

12/05/05 (01:00 GMT)

FOREX Trading Australia – Market Summary

· Dollar bulls got just what they were hoping for, as the unexpected decline in the trade deficit has strengthened the bid tone for the Greenback. The Trade Deficit recorded its largest monthly decline in more than 3 years while the Budget Surplus increased in line with expectations. While it would take a consistent stream of positive data outcomes for the market to put their weight significantly behind the Dollar, for now things seem heading on the right track with Retail Sales eyed today.

· The Euro has slipped back to its base around 1.2785 which has held well for last 3 months but is close to breaking below; another set of positive U.S. data could sink it towards its yearly lows. Earlier, French Industrial Production declined more than expected while the Small Biz sentiment indicator slipped as well. The reason, familiar problems of high unemployment reducing consumer confidence while high oil prices are stiffening business spending.

· The Yen has fallen back into the 106 region as the Dollar remains buoyed by strong data while the Japanese data remains on the soft side. Leading Economic index came in line with expectations but still below the boom/bust mark of 50 suggesting contraction while this morning’s Bank Lending data continues to show a decline as companies are reluctant to borrow under the current deflationary conditions. Earlier, the Yen rallied along with other majors for a brief period following a report in a Chinese newspaper of a slight revaluation of the Yuan next week, sanity returned to the markets after a subsequent decline by Chinese officials.

· The Pound has seen a strong u turn in sentiment as initial relief of the reduction in U.K. Trade deficit was more than offset by the dovish tone in BoE’s quarterly inflation report. The market was caught off guard by the BoE’s tame inflation outlook which implied on hold and possibly rate cuts towards the end of this year. However, this should come as no surprise to someone who has followed the sharp slowdown in economic conditions in the last few months in the U.K. The Pound find’s itself at the mercy of Dollar’s direction and risks another freefall.

· The Aussie was all set to break below its recent strong support around 0.77, however the better than expected Employment report has helped it stay above that mark. 6.9K jobs were added against expectations of a decline while the jobless rate remains at a 28 year low of 5.1%. While this might not be enough to prevent losses on the face of a strong Dollar rally, it does make Australia stand out a bit, in the current scenario of slow global growth.

Economic Data Released

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*Only key potential market moving data is mentioned, for a detailed Economic Calendar please click on the ‘Financial Calendar’ link on the web-site.

Technical Analysis

EUR/USD – Yesterday’s low was 1.2776 and high was 1.2911.
The pair closed at 1.2802.

Strong U.S. data has sent the pair slipping back towards its support around 1.2785 and could go towards its yearly lows below 1.2750 as U.S. retail sales data is eyed. A break below that mark could accelerate losses for the Euro with distant support around 1.2675. On the upside, 1.2895 continues to hold resistance with very strong resistance and selling interest around 1.2955.

Key resistance is seen at 1.2895 followed by 1.2955 while support starts at 1.2785 followed by 1.2725.

USD/JPY – Yesterday’s low was 104.93 and high was 105.93.
The pair closed at 105.70.

The lack of any concrete news on the Yuan revaluation front has led the Dollar to break above strong offers around 105.40. But the Yuan story is still alive and mild offers are seen around 106 level with resistance in the 106.30-45 zone. On the downside mild Dollar bids lie around 105 with very strong support around the 104.55 mark. U.S. data will provide further direction.

Key Resistance is seen at 105.85 followed by 106.45 while support starts at 104.95 followed by 104.45.

GBP/USD – Yesterday’s low was 1.8794 and high was 1.8911.
The pair closed at 1.8820.

U.K. data outcomes were weak and the Pound retains a downward bias as the U.S. trade balance has come in better than expected. Many support levels were broken on the tame U.K. Inflation outlook. Mild support and buying interest exits in the 1.8690-1.8710 with a break below targeting the support at 1.8645-60. On the upside mild resistance exists around 1.8775-90 followed by strong resistance in the pivot mark of 1.8855

Key Resistance is seen at 1.8795 followed by 1.8855 while support starts at 1.8695 followed by 1.8645.

AUD/USD – Yesterday’s low was 0.7723 and high was 0.7791.
The pair closed at 0.7732.

The Employment data had a positive effect on the Aussie but it remains in a technically mixed zone within the 0.77 region. Good support and buying interest persists in the 0.7705-20 zone while mid resistance continues around 0.7770 followed by very strong resistance in the 0.7825-40 zone. A break below 0.77 targets the 0.7655 support mark and losses could accelerate on a break below that.

Key Resistance is seen at 0.7775 followed by 0.7845 while support starts at 0.7705. followed by 0.7655.

Kunal ‘Kris’ Sharma
Forex Analyst
E-mail: kris@easy-forex.com

Australian Financial Services License 246566

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