FOREX Trading Australia Daily Outlook 17/05/2005

17/05/05 (01:00 GMT)

FOREX Trading Australia – Market Summary

· Dollar had a reality check as Foreign Capital flows reduced significantly and came below even the most cynical forecasts. Japan and China, the two largest holders of U.S. treasuries turned net sellers with demand steadily declining over the last few months. Since Yuan revaluation is considered an eventuality irrespective of the timeframe, the Asian nations would not like to be caught on the wrong foot with large Dollar assets in their kitty. In spite of this setback, Dollar’s fortunes depend on the consumption power of consumers with the focus on this week’s inflation data as well as Fed’s comments.

· The Euro was confined to narrow movements as German, Swiss and French markets were closed. Apart from decent technical support on dips below the 1.26 mark, weak U.S., data helped the Euro stay above that mark. Italian inflation data was tame due to the easing in oil prices and this should be reflected across the zone. It needs some solid data releases this week to capitalize on the halt in Dollar’s rally. 1.2695-1.2710 is the resistance zone for now.

· The Yen was the big market mover rallying by more than 100 points post U.S. capital inflow data. If the Japan, which has been notorious for its heavy purchases in the past, turned net seller, then speculators had to follow suit. It could also be interpreted as Asian nations preparing for the Yuan revaluation and getting rid of their huge Dollar deposits at the present exchange rate before the Dollar slips significantly. Data has supported it as well with Consumer Confidence increasing while this mornings GDP has come in much higher than expected, this gives credence to the Government’s assertion of a steady recovery in the economy.

· The Pound continued its decline and has now fallen by around 700 points in 10 days as every news is turning out to be a bad one for the U.K. RICS House prices survey continues to point towards a steady decline in prices while Rightmove property web-site has shown house sales around 10 year lows. Leading indicator index declined as all sectors of the economy are hitting a soft patch. Inflation data is eyed from both sides of the Atlantic for further direction.

· The Aussie was helped by the technical support zone at 0.7540-55 as well as the general rally by Asian currencies post U.S. data. However the sharp fall in commodity prices is weighing in on it while prospects of Chinese economy slowing a bit towards the year end is also causing some discomfort. Cue is taken from other majors with U.S. inflation and local wage price index the next focus.

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 1.2580 and high was 1.2649.
The pair closed at 1.2624.

Bottom pickers and mild profit taking has for now, helped the Euro stay around 1.26 with U.S., TIC’s data disappointing. A fair number of bids are lined down to the crucial psychological level of 1.25 with 1.2575-90 the first zone of support. On the upside no clear rally is expected from the Euro, with weak moves towards 1.2695-1.2710 likely to meet strong offers with strong resistance above it around 1.2755. The 1.25 level is eyed closely and a break below would signal a major shift in sentiment.

Key resistance is seen at 1.2695 followed by 1.2755 while support starts at 1.2580 followed by 1.2505.

USD/JPY – Yesterday’s low was 106.54 and high was 107.77.
The pair closed at 106.73.

The lack of any concrete news on the Yuan revaluation front has led the Dollar to break above strong offers. While mild offers above 107 were also broken above, this brings the 107.75 resistance mark into focus. A break above could accelerate gains towards the resistance zone at 108.20-35 as data outcome is eyed from both regions. The massive selling of U.S. treasuries by Asian Central Banks is providing a fair degree of support for the Yen.

Key Resistance is seen at 107.55 followed by 108.25 while support starts at 106.55 followed by 106.05.

GBP/USD – Yesterday’s low was 1.8331 and high was 1.8490.
The pair closed at 1.8369.

Losses continue unabated for this pair with weak U.S. data helping the Pound stabilize for now. Inflation data is eyed from both sides of the Atlantic for further direction. The Pound remains in the oversold territory in the short term with first line of resistance around 1.8455 followed by decent offers on moves above 1.85. On the downside strong support exists around 1.8325 followed by support around 1.8245.

Key Resistance is seen at 1.8455 followed by 1.8510 while support starts at 1.8325 followed by 1.8245.

AUD/USD – Yesterday’s low was 0.7535 and high was 0.7596.
The pair closed at 0.7570.

The pair targeted the strong support zone at 0.7440-55 but failed to break below and has stabilized above it. A break below 0.75 pivot mark could accelerate losses. On the upside, 0.7645 now holds resistance followed by strong offers around 0.7695. U.S. inflation data as well as trend of commodity prices is eyed.

Key Resistance is seen at 0.7645 followed by 0.7695 while support starts at 0.7535. followed by 0.7495.

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

Australian Financial Services License 246566

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