Australian FOREX Weekly Outlook 15/11/2005

14/11/05

The Dollar was stronger against all the major currencies last week. The Euro closed last week at 1.1729 having started the week at 1.1823. US$/JPY closed last week at 117.86 having started the week at 118.27. The GBP closed last week at 1.7420 having started the week at 1.7519.The A$ closed last week at 0.7324 having started the week at 0.7379.

The dollars strength continued this week, despite a record September U.S. trade deficit which failed to shake investor optimism that U.S. interest rates were headed higher. The dollar”s resilience in the face of the deteriorating trade balance testified to the market”s bullish sentiment on the U.S. currency and the belief that it would continue to possess relative interest rate and growth advantages.

The week ahead

A casual glance at the calendar shows that it is a busy week pending. There is a host of activity and inflation data out of the US, the Eurozone and the UK.

In terms of US data, it is worth noting at the outset that retail gasoline prices dropped by 6.5 per cent on the month in October. This factor will have a bearing on both retail sales (Tuesday) and consumer price inflation (Wednesday). The producer price index PPI is due out on Tuesday followed by US industrial production for October is also due out on Thursday. All these data releases are seen as lagging indicators, the more forward-looking activity guides are the New York Fed survey (Tuesday) and the Philly Fed Survey (Thursday). Finally, in the US, note the start of a new era with the confirmation hearing for Mr. Bernanke before the Senate Banking Committee (Tuesday). We will provide our previews of these data releases in the daily summary.

In the Eurozone, the main focus will be on any data that might push the ECB one way or the other. This makes the third quarter GDP (Tuesday) assume more market importance than usual.

The view of an improved outlook in Germany could be reinforced by the monthly ZEW survey (Tuesday). Wednesday sees the release of Eurozone inflation for October. In the UK, there is also a mix of inflation and activity releases, starting with the Headline CPI inflation (Tuesday). The other key release out of the UK will be October retail sales (Thursday). The recent data out of the UK, removed any chance of a near-term cut in rates. The next landmark will be the quarterly inflation report (Wednesday). This is when we get the MPC’S updated projections, most importantly for inflation two years out. We will provide our previews and reviews of these data releases in the daily summary.

In Japan, the calendar is a light one, but the end of the week will see the updated Monthly Report for the BOJ (Friday). In Australia, the calendar is rather sparse as well with the wage price index (Wednesday) being the only release of any substance.

Key Weekly Pivot levels

EUR/USD – 1.1695

Euro continues to make new trend lows. A breach of the 1.1673 low opens the door for a test of support at 1.1588 (38.2% retracement of the .8225 (October 2000 low) to 1.3663 (December 2004 high) rally). Below that level is very little support until the 1.1383 reaction low set back in Nov 2003. Only a move above the 1.1773 to 1.1830 congestion zones would put the bear trend on hold. Only a move above 1.1976 (61.8% from 1.2170 thus far) would bring up the possibility of a short-term low in place.

USD/JPY – 118.75

USD/JPY has climbed to fresh highs, confirming a continuation of the uptrend. The break above the 118.42 (50% retracement of the major 135.14 – 101.71 decline) opens the door for a move towards 120.00 and 120.68. The 120.00 is more a psychological level, while 120.68 marks the Aug 1 2003 high. The break above 118.43 has also established 116.88 (Nov 9 low) as a key support level and a break of this level is required to undermine the current uptrend.

GBP/USD – 1.7380

The recovery from last weeks 1.7332 trend low, looks to have been a corrective move. The 1.7508 (38.2% of 1.7792 to 1.7332) to 1.7523 (reaction high from Nov 4) is proving to be tough resistance. While this level keeps a lid on any rallies, technical conditions will favor those with bearish views on the Pound. So a break of the 1.7332 trend low would open the door for a move towards the 1.7270 low from July 20.

AUD/USD – 0.7275

Aussie made yet another new trend low below 0.7286. A break and close below this level would signal a move towards the next support around 0.7242. This marks the 61.8% retracement of the rally from 0.6781 (June 17, 2004 low) to 0.7989 (March 08, 2005 high). The next support level is located at 0.7066, the 76.4% retracement of the same advance. Short-term resistance is well defined at last Wednesday”s 0.7379 high, followed by 0.7393, the 38.2% retracement of the declines thus far from the Oct 27 0.7601 high.

Rory Kennedy

Sydney Dealing Desk
E-mail: rory@easy-forex.com

T: 1 800 176 935

Int. +61 2 9232 2443