Australian FOREX Weekly Outlook 22/11/2005

22/11/05

Comment
The Dollar was mixed against the major currencies last week. The Euro closed last week at 1.1765 having started the week at 1.1729. US$/JPY closed last week at 119.10 having started the week at 117.86. The GBP closed last week at 1.7168 having started the week at 1.7420. The A$ closed last week at 0.7323 having started the week at 0.7324.

There was a mix of data out in the States last week, which in the end all seem to cancel each other.With no clear direction from data release the dollar ended up mixed against the major currencies. The big mover last week was the Pound, which slid to its lowest level in two years against the dollar and weakened versus the euro on Wednesday after a dovish inflation outlook from the Bank of England (BOE), which reopened the debate on UK interest rates.

THE WEEK AHEAD

This week’s focus will clearly be on the Eurozone, with its calendar being jam packed with numerous high-profile economic releases and a potentially crucial public appearance by ECB President Trichet.

In the States, the calendar is rather light due to the Thanksgiving holiday.That said, it is always worthwhile keeping an eye on the performance of leading indicators. The Conference Board’s composite index is due out Monday followed by the Chicago Fed National Activity Index (CFNAI) on Tuesday. The final reading in the University of Michigan’s consumer sentiment measure is due out on Wednesday.
We will provide our previews of these data releases in the daily summary.

In the Eurozone, the calendar is packed with numerous nigh profile economic releases and a potentially crucial public appearance by ECB President Trichet. The markets are increasingly nervous about the possibility of an ECB rate hike as early as December 1. This could see Trichet use his testimony before the EU Parliament on Monday, as an opportunity to manage near-term interest rate expectations. Trichet’s comments complicate matters, given the fact the coming two weeks will see busy and high – profile data flow out of the Eurozone. Wednesday sees the release of German regional CPI’s as well as the Belgian leading indicator. The German IFO business climate index and the French Insee survey are both out on Thursday. Italian business confidence is due out on the Friday. In the UK, it will be a light week in regards to data releases. The revision of Quarter 3 GDP data is out Friday, with the BOE monetary policy committee minutes due out on Wednesday. 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 CPI (Friday) released. This has some significance as the Bank of Japans key condition for a shift away from its current ultra-easy policy stance is that inflation turns positive. In Australia, there are no major data releases for Australia this week. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

EUR/USD – 1.1735
The pivotal short-term resistance at 1.1845 (38.2% retracement of the 1.2170 to 1.1644 decline) did a good job of rejecting yet another leg up in the corrective process from 1.1645 (Thursday’s low). The major resistance is close by at 1.1871 which was the previous triple bottom on the way down. Support is located at 1.1718 (61.8% retracement of 1.1645 to 1.1836). Medium term support is located at 1.1645 and a breach of this level would open the door for a test of 1.1588 (38.2% retracement of the massive .8232 to 1.3663 rally).

USD/JPY – 119.05
For the uptrend to be put in doubt weakness is required minimally below the formerly resistant 118.39 high from Nov 7 and ideally below Nov 9’s 116.86 low would be necessary for confirmation that an interim top is in place. So the broad up-trend remains intact, with fresh upside beyond 119.57 seen as the catalyst for an extension towards 119.83, the high from Aug 19, 2003, then 120.73, the peak from Aug 1, 2003

GBP/USD – 1.7160
The downtrend pattern of lower lows and lower highs continues with last Wednesday’s violation of July 20’s 1.7271 base representing a new low for the year and the lowest level seen since Dec ’03. Next support is located at 1.7091 followed by the psychological support at 1.7000. Former support from Nov 8 at 1.7326 now acts as key resistance and needs to cap the topside to keep bear trend intact.

AUD/USD – 0.7355
This correction in Aussie from 0.7264 is testing resistance in the 0.7379 (Nov 09 reaction high) to 0.7393 (38.2% retracement of the leg down from 0.7601 to 0.7264) area. A break of this level would open up the possibility for a test of 0.7472 (61.8% of the 0.7601 to 0.7264 decline). Short-term support is located 0.7313 (61.8% of the recovery from 0.7264 thus far) to 0.7302 (Friday’s reaction low). Major support is located at 0.7265.

Rory Kennedy
E-mail: rory@easy-forex.com

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