Australian FOREX Weekly Outlook 29/11/2005

29/11/05

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.

last week recap

The key events of last week included comments by European Central Bank president, Jean-Claude Trichet, who pointed towards imminent ECB rate hike early in the week. These comments drove the Euro higher but were reversed by less hawkish comments the following night, when he said the central bank was not planning a series of interest rate hikes. In the States the Federal Reserve pointed to a pause in the bank’s rate hiking cycle. Minutes of the November 1 Federal Reserve Open Market Committee (FOMC) meeting show that some members warned that there could be risks of raising rates too far. This had immediate impact on the dollar, as it weakened against the major currencies. The Japanese yen weakened against all currencies as an end to BOJ’s quantitative easing policy became less likely in the short term.

The week ahead

The key market focus of the coming week is the ECB policy meeting. The ECB have had no change to policy in two and a half years, and this is likely to come to an end as the market expects a 25 basis point hike to 2.25% on 1 December. Non-farm payrolls in the States will also be followed closely by the market.

In the States, one of the most eagerly-awaited economic releases of the month is always the US payroll report (Friday). Another above-trend gain in wages could set off talk of rising inflation pressures and influence expectations about the extent of future tightening by the Fed. November survey data included the ISM manufacturing index on Thursday and Chicago PMI on Friday. The other key US economic releases that we will see over the coming week comprise durable goods and new home sales data both on Tuesday. We will provide our previews of these data releases in the daily summary.

In the Eurozone, the market focus will be on the ECB policy meeting (Thursday). Eurozone inflation looks set to remain above the ECB’s target in coming months.The market will therefore closely watch the aggregate Eurozone HICP flash estimate (Wednesday) and the M3 money supply (Tuesday). Another strong rise in money supply is likely to reinforce the ECB’s intention to raise rates. The PMI manufacturing survey is out on Thursday. French unemployment is out on Wednesday followed by German unemployment on Thursday. In the UK, the key data concerns the housing market and the consumer. Mortgage approvals (Tuesday) picked up in August and sustained this gain in September. This improvement has fed through to a slight pick up in house price growth in October. Consumer credit (Tuesday) and GfK consumer confidence (Thursday) should also help gauge the current state of the UK consumer sector. We will provide our previews and reviews of these data releases in the daily summary.

In Japan, the turn of the month always brings a packed data calendar for Japan and the coming week will see the release of unemployment (Tuesday), workers household spending (Tuesday), industrial production data (Tuesday) and the Japanese PMI (Thursday). Australia’s recent economic data lull comes to an abrupt end this week. Q3 readings on construction work done will be released Wednesday. The capex survey is due out Thursday will be one of the main highlights. Retail trade is due out Wednesday with the current account deficit released on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

EUR/USD – 1.1825

Volatile action from the 1.1644 Nov 14 trend low extended beyond last week”s 1.1856 high on Monday, opening the door toward the 1.1903 (Oct 3 low) to 1.1907 (50% retracement of 1.2170 to 1.1644). Only a move above this area would begin to put doubt in the ability of the short-term bear trend”s ability to eventually post a new trend low below 1.1644. Even then, only a move above the 1.1941 (trendline) to 1.1969 (61.8% of 1.2170 to 1.1644) band would begin to establish a short-term bull trend For now, short-term support is in the 1.1767 (61.8% retracement of the leg up from 1.1683 thus far) to 1.1743 (61.8% retracement of the gains from 1.1644 thus far).

USD/JPY – 119.20

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 – 1.7250

Monday”s new trend low in early action followed by a rise above Friday”s high has a key reversal day brewing on the daily chart. Subsequent follow-through above last week”s 1.7284 high opens the door towards resistance at 1.7365 to 1.7400 zones. Only a move above this heavy band would begin to establish a short-term bull trend. Initial support is in the 1.7161 (61.8% of the recovery from 1.7052 thus far) area, followed by the 1.7052 trend low from Monday.

AUD/USD – 0.7405

The upswing from 0.7264 (Nov 14 low) staged a notable upward acceleration Monday, pushing through last week”s 0.7404 high and the 0.7443 low from Oct 19. Penetration there has the door open toward 0.7472, the 61.8% retracement of the 0.7601 to 0.7264 decline, with secondary resistance at 0.7521 (76.4% retracement of the same move). Only a break of support from 0.7336 (61.8% retracement of the gains from 0.7264 thus far) to 0.7325 (reaction low from yesterday) would reestablish the bear trend from 0.7762 (Sep 9 high).