Australian FOREX Weekly Outlook 27/09/2005

26/09/05

Sheer relief abounds the market after Hurricane Rita had minimal impact over the weekend compared to the record level of damage left behind by Katrina. Major oil refineries were spared of its impact and as result oil prices have eased back slightly and could drop more. Thus the Dollar has rallied since, and these gains could have eventuated earlier in the week after the Fed’s accompanying statement has made it clear that we are looking at interest rates to be at 4.25% by the end of the year. But the market was skeptical to jump in buying the Dollar as Rita’s impact was eyed.

Yet again the U.S. and the Dollar have shown impressive resilience in the face of adverse events and look to have come out on top. Structural imbalances in the economy have taken a back seat for now, as the attention is squarely on the prospect of further rate hikes for the U.S. Dollar’s performance in the last 6 months looks more attractive when compared to the problems faced by other regions.

Now that the market has tried and tested the effect a higher Euro has on the zone’s exports they will be very reluctant to push it back towards the uncharted territory of 1.30 and beyond, knowing fully well the fissures that it might create. The Euro’s fall from around 1.35 in March to around 1.19 in July helped in boosting exports considerably with steady recoveries seen in German and French economies since. Especially in Germany where corporates have cut back their profit margins and are becoming more competitive in the current era of intense global competition.

Country wise the main problem for the Euro-Zone is emanating from Italy, frustration is rising there among politicians and people alike of the economy remaining in the sluggish state and not being able to benefit from the recent fall in the Euro as Germany and France have. The crisis has intensified after its Finance Minister Siniscalco resigned last week, and this was always in the making given the that he had rarely seen eye to eye with the Central Bank’s conservative Governor Fazio. But the general consensus is that Siniscalco’s reform plans is just what the economy needed and his resignation adds further doubts on the recovery. Another general feeling in Italy is that the Euro is best for the top two economies in the zone i.e. Germany and France as well as the ones on the bottom with the middle ones like Italy missing out on optimizing the benefits of having a single currency to their advantage. If the economy fails to pick up by the end of the year, expect signs of deep dissent and possible calls to break out from the single currency.

The high yielders were subjected to intense see saw movements as we were caught between the first hurricane then the Fed’s meeting and now with the second hurricane subsiding, the Dollar has clearly won the battle. Poor interpretation of the impact of the hurricane on the U.S. economy and the Fed, led to the general feeling in the market that rates could remain at 3.5% by year end, which now look likely to be at 4.25%. Needless to say, the Pound has borne the brunt of this turnaround and looks vulnerable for further losses.

Other high yielders the Aussie and the New Zealand Dollar are for now subjected to the movements in commodity prices, which are expected to resonate between profit taking at these high levels but also supported by good demand from Asia.

After the Dollar, the Yen is the next favoured currency with Koizumi well in command with the Japanese parliament finally approving Postal privatization plan and this trillion dollar sector will create the world’s largest financial insitution. Also to be watched are further announcements from China, which after widening its band against non Dollar currencies, Chinese officials have rejected calls for a faster currency reforms in the weekend’s G7 meeting. However given the history of previous announcements, another modest revaluation step is likely by the year end.

Forex USA

Forex Euro-Zone

Forex Japan

Forex U.K

FOREX (Foreign Exchange) Key Weekly Pivot levels

EUR/USD – The pair has finally broken below the crucial 1.21 level after nearly two months and it led to further acceleration of losses towards 1.20. Decent bid interest lies around that mark with oversold condition could further help it find some bid interest. But Dollar’s momentum is strong and a clear break below could accelerate the pair’s losses further which would push the Euro into deep negative territory. Key support levels come up around 1.1910 followed by 1.1870 with a clear break below to send the pair to its lowest levels in a year and could set it up for a fresh downtrend towards the 1.15 mark. On the upside, immediate resistance comes up in the 1.2145-60 zone with mixed interest seen till the 1.2275-1.23 region where resistance is now strong. The 1.23 region is littered with selling orders and only a deep foray into this region brings the pair back in neutral region otherwise it remains vulnerable for further losses.


USD/JPY – The Yen has declined significantly last week with the pair breaking clearly into the 112 region and staying above it. Crucial resistance levels lie ahead with immediate at 112.75 followed by very strong resistance around 113.40. A clear break above this mark would send the Yen to its lowest levels in a year and shift it into deep negative territory. But it would be hard for the Dollar to achieve those gains and its inability to break past 113 would set the pair into 111-113 range trading mode. On the downside, immediate support is seen around 111.55 with a break below to bring into focus very strong bid interest just below 111 for the Greenback. A clear and decisive break below by the Yen would shift the pair into neutral territory and could bring back the recent range trade seen between 109-111. Data outcomes are awaited for a clearer direction.


GBP/USD –The pair has fallen by around 400 points in the last few days and further losses look possible but are likely to be in steady and gradual manner. For now, oversold conditions are offering decent bid interest just below 1.77 with immediate support seen around 1.7650. a clear break below could further accelerate its losses with distant support seen around 1.7570. Minor profit taking rallies are natural but inability to break above the 1.80 mark leaves it vulnerable for further losses with an eventual move towards 1.79 seen. On the upside immediate resistance comes up around 1.7850 followed by stronger resistance around 1.7920 with mixed interest seen till the 1.80 mark. Only a break above it could send the pair back in neutral region but selling orders remain strong above with data outcomes eyed from both sides of the Atlantic.

AUD/USD – The Australian Dollarhas eased back taking cue from other majors with key support lying around 0.7545. more losses look likely with 0.7460-75 support region very crucial as a decisive break below this region could accelerate the pair’s losses with next key level around 0.7375 which if broken will send the pair towards its lowest level in a year and eventually set the downtrend towards 0.70 with key support levels in between to be broken. On the upside immediate resistance is seen around 0.7675 mark with selling orders lined above the 0.77 mark all the way up to the 0.78 mark. Only a break above raises hopes of a Aussie rally otherwise further losses are likely.

Kunal Sharma

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

Australian Financial Services License 246566

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