Australian FOREX Weekly Outlook 20/09/2005

20/09/05

Dollar has staged an impressive comeback in face of adverse circumstances and eventually signs of improvement in the relief efforts post hurricane as well as the broad based assertion that the Fed would go ahead with its rate hike on Tuesday, this compared to the gross uncertainty surrounding the formation of the new government in Germany, has tilted the balance in the Dollar’s favour.

This week has started with the Dollar rallying across the board as the worst case scenario possible before the German elections has eventuated with the final outcome failing to produce a clear winner. The best possible result for the Euro would have been opposition leader Angela Merkel winning by a clear majority but she has seen her early lead slip significantly and Schroeder gaining good ground in the last few weeks which could be attributed to the traditional German reluctance for change. While Merkel is confident of mustering a majority, at the same time Schroeder is equally confident and insists he can form a grand coalition and stay in power. Needless to say neither side will be able to form the new government without any compromises nor would the smooth passing of any prospective reform plans be possible.

Unfortunately the average German facing post world war record high unemployment levels would be the most affected by this outcome and Schroeder’s reelection would increase the discontent among the average masses that are very unhappy with his reform policies. The discontent is much higher in the erstwhile East Germany where unemployment rate is around a staggering 19% and the fact that Merkel hails from that part of Germany raises hopes of an improvement in that region. Since the reunification in spite of billions of Euro pumped into it, conditions haven’t improved as initially thought of, with mass exodus of young working population to the western side.

The Pound has followed the Euro and eased back and sooner or later the realization that another interest rate cut is indeed needed in the near future is likely to dawn upon Bank of England officials. Rising oil prices have increased inflationary pressures around the globe which in turn has stiffened consumer’s spending habits further and especially in countries like the U.K. where consumers are riddled with high debt and interest rates. Thus in this environment where even the recent rate cut hasn’t helped in spurring spending, reduced demand would probably bring inflation down below the BoE’s target and clear the way for another rate cut.

Japan is seeing a surge in interest for its assets by overseas investors with Nikkei continuing its impressive run and political stability has returned. On a macro level, conditions look good for the economy with bright prospects in the medium to long term horizon but the failure of general household and consumer spending to pick up in spite of the labour market improving, is a cause for concern. The yield factor is also weighing against the Yen in the short term as rising U.S. interest rates are leading to a significant shift of capital by private investors as seen by the strong foreign capital inflow last Friday.

Couple of key factors has arisen over the weekend and early Monday trading apart from German and New Zealand elections pointing towards hung parliaments. Comments from Chinese Central Bank warning speculators against hopes of a significant revaluation of the Yuan in the near future as well as latest reports that North Korea has decided to stop its nuclear program has also been Dollar positive. But again it could be a case of nature deciding the final outcome with oil prices inching back higher on fears of a hurricane hitting the coast of Florida.

Forex USA

Forex Euro-Zone

Forex Japan

Forex U.K

FOREX (Foreign Exchange)Key Weekly Pivot levels

EUR/USD – The pair has come a full circle after its massive rally 3 weeks having gone back to its starting level due to political uncertainty. Key support levels gave way last week and further losses look likely with mild bottom picking bid interest seen just below 1.21. Immediate support lies around 1.2070 which if broken decisively would accelerate losses till the distant strong support mark around 1.1980 with mild bottom picking bid interest around 1.20. Any moves lower would shift the Euro in deep negative territory and make it very hard for it to pare back its losses. On the upside, Immediate resistance is seen around 1.2240-55 region with any break higher to lead to mixed technical interest till the 1.2315 region where decent resistance lies. Going further up very strong resistance lies around 1.2390-1.2405 region with strong offers littered within the 1.24 region and any gains are expected to be capped within it. The eventual outcome of the German elections is eyed for direction.


USD/JPY – The pair has again broken from its recent 109-111 but this time decisively with immediate resistance seen around 112.25 with mild offers lying just above 112. A break higher brings very stronger resistance around 112.80 which has held well in the past with very strong offers lying above it lined up to the 113.10 mark. A clear decisive break into the 113 region would shift the Yen in deep negative territory. On the downside key intra week support levels have moved down with decent buying interest coming up around 110.55 which holds the first level of support with a break below leading to mixed interest down till the 109.75 strong support mark. A unclear break could send the pair back in range trading mode with 109 as the very strong support mark which is expected to hold well with very strong bids just below it.


GBP/USD –The pair has slipped back significantly and has nearly pared back its strong bull run gains at the start of the month. Mild bottom picking bid interest lies around 1.7960 with decent support around the 1.7910 mark. The Pound has already shifted in negative territory and further losses look likely with distant strong support seen in the 1.7830-45 region, this area is very crucial as a clear break below will make it very hard for the Pound to reverse its losses and could set a fresh uptrend for the Dollar. On the upside, immediate resistance is coming up around 1.8115 with mixed interest and no clear bias seen above it till the 1.8250-65 resistance region which is not strong with offers lined above it till the very strong resistance mark of 1.8315. Selling orders are lined above this mark which intensifies as we reach 1.84 which is expected to cap any gains.

AUD/USD – The Australian Dollarhas eased back taking cue from other majors and risks further acceleration of losses but strong bottom picking bid interest lies just below 0.7590 with very strong support around the 0.7575 mark. Support remains strong down till the 0.7545 mark but a clear and decisive break below it, could accelerate losses down till the distant support mark around 0.7470 which is expected to cap any weekly losses. On the upside, immediate resistance is seen around 0.7690 with selling orders intensifying on a break above 0.77 with very strong resistance around 0.7755. In case of a break higher any gains are expected to capped around the 0.78 region.

Kunal Sharma

Easy Forex Pty Ltd. (Australia)
E-mail: kunal@easy-forex.com

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