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Australian FOREX Weekly Outlook 03/10/2005

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03/10/05

FOREX - Australian Dollar Market Comment
Dollar�s spectacular rally in early Monday Asian trading seems to have changed the question on the markets mind from, Will the Dollar be able to break the strong support around 1.20 for the Euro which held well for the last 3 months? To, Will the high yield for the Dollar be able to offset the negatives of oil prices and help it make further significant gains? The answer of course will be received in time but one thing is clear, the negatives of high oil and energy prices is not a just a U.S. problem but a Global conundrum.

Raw materials prices are soaring which are cutting into corporate profits and this threatens to severely affect the recent improvement in the employment sector in Japan with wage growth now looking under threat while the export dependant economy of the Euro-Zone is also affected by this. But especially in Japan the spike in oil prices threaten to take the wind out of the sails from the recent optimism for the economy which has emanated from the strong run on the Nikkei, increase in corporate profits as well as a strong likelihood of a change in the monetary policy stance next year with major banks already looking to raise their savings rate. The result of Tankan surveys which showed business confidence rising less than expected as thrown fresh questions on the optimistic growth forecasts. Still its fundamentals are better of than most regions and the Yen could remain steady on its crosses.

The problem for the Euro-Zone at the moment is the failure of Consumer confidence and subsequently Spending to pick up in spite of the business confidence rising. Corporate profits of course have been on the back of a weaker Euro boosting exports with Italian businesses finally joining their French and German counterparts. This however has done nothing to change the sluggish job market and wage growth remains low even as consumers continue to battle the high costs of oil. Of course with time and further declines in the Euro, further increase in corporate profits will improve the employment sector & wage growth and hopefully create an environment where consumers can spend more freely.

If the businesses in the U.S., Euro-Zone and Japan are paying high costs for raw materials then someone is obviously receiving this money, thus enter the Commodity bloc. The Canadian Dollar went to its highest level in 14 years buoyed by high metal prices, rate increases seen in the pipeline as well while the economy�s outlook looks very promising. An interest rate hike is also expected in New Zealand where the GDP outcome beat expectations while Aussie fundamentals continue to remain on the strong side. Demand for their exports is equally strong from Asia and as of now is not showing any signs of abating.

Another factor that is becoming a bit clear is that there is unlikely to be a clear trend given the conflicting global economic factors. As the northern hemisphere winter approaches and prices of natural gas already reaching record levels, could make it a very expensive winter for consumers. It seems impossible for consumer confidence to increase anywhere around globe if oil prices refuse to ease back & keep getting higher. Thus we could be in a stage where mixed data results are seen from all regions and it is going to be the case of which economy turns out to be most resilient and able to withstand these high prices and inflationary pressures with an environment of slow growth. And as things seem now, the best bet in the current scenario is likely to be the Greenback.

FOREX Related Key Economic Releases

Forex USA

Day	GMT	Release	Previous	Forecast	Comment
Monday	14:00	September ISM Manufacturing m/m	53.6	52.0	Manufacturing to remain around steady levels.
Tuesday	14:00	August Factory Orders	-1.9%	1.5%	Orders to rebound on increased inventory demand
Wednesday	14:00	September ISM Non-Manufacturing	65.0	59.6	Services sector affected by hurricane and high energy prices
Thursday	12:30	Initial Jobless Claims	356k	385k	More hurricane victims to file claims
Friday	12:30	September Non Farm Payrolls	169K	-100K	Payrolls to lead to a negative reading on hurricane job losses

Forex Euro-Zone

Monday	07:55	September French PMI Manufacturing m/m	52.5	52.2	Manufacturing to stay steady but threatened by high oil prices
Tuesday	09:00	August PPI m/m	0.5%	0.4%	High oil and energy prices to keep inflation high
Wednesday	09:00	August Retail Trade m/m	-0.5%	0.4%	Sales to rebound on seasonal factors.
Thursday	10:00	August German Factory Orders	4.1%	-2.3%	Orders to decline as high oil prices have reduced demand
Friday	10:00	August German Industrial Production m/m	1.2%	-0.5%	Production to decline as high oil and energy prices are affecting demand

Forex Japan

Sunday	23:50	Q3 Tankan Larger Manufacturers Index	18	22	Manufacturers benefiting from good domestic demand and rise in exports
Friday	05:00	August Household Spending	-3.7%	-1.5%	Spending to increase as wages have risen.
Friday	05:00	August Leading Economic Index	45.5%	100%	Economic index to strongly go back in expansion region

Forex U.K.

Tuesday	08:30	September CIPS Construction PMI	57.4	56.7	Construction has slowed but still in expansion area
Wednesday	08:30	September PMI Services survey	55.2	55.0	Services activity should remain around steady levels
Thursday	08:30	August Industrial Production m/m	-0.3%	0.2%	Recent boost in export orders should increase production
Thursday	11:00	Bank of England Interest Rate decision	4.5%	4.5%	Rates to remain on hold on inflation concerns.

FOREX (Foreign Exchange) Key Weekly Pivot levels

EUR/USD � The pair has finally broken clearly below the strong support around 1.20 and its losses have accelerated. Immediate support comes up in the 1.1890-1.1910 support region with a fair bit of bid interest seen around it. A break below brings the very strong support region of 1.1850-65 into focus which has held well for more than a year. This region is very crucial and a clear break below could accelerate losses further and set a fresh uptrend for the Dollar. Distant key support marks are then seen around 1.1810 followed by 1.1765. On the upside, immediate resistance comes up around 1.2025 followed by the continuation of very strong resistance in the 1.2075-90 region. Any prospective break above it should encounter strong selling orders in the 1.21 region with mixed technical interest seen with Dollar bias. The pair will only shift into neutral territory if it can break above 1.22 otherwise the Dollar remains poised for further gains.

USD/JPY � The Yen has declined significantly going towards its lowest level in 16 months by breaking above 114. However it should remain firm on its crosses which could help it stiffen its losses on the main pair. Some degree of profit taking could see it go back in 113 region and range trade within it with immediate support seen around 113.20 followed by decent bid interest around 112.70. These bids for the Dollar are lined down till 112.25 where support is very strong and the pair will only go back in neutral territory if it can break back into the 111 region. On the upside, immediate resistance lies around 114.30 with a fair degree of profit taking expected on moves above it. Further pivot levels are seen at 114.60 and 115.25 but traditional resistance only exists at a distant 116.

GBP/USD � The pair has eased back significantly slipping towards 1.75 where bottom picking bid interest is expected to lend a fair degree of support to it. The pair is prone to exaggerated movements and could go back into the 1.76 region on profit taking and this region has mixed technical interest. Strong resistance lies around 1.77 with decent sized offers lying within this region. While the pair remains vulnerable for further losses only a break above 1.80 are needed to shift it back into neutral territory. On the downside immediate support is seen around 1.7480 followed by strong support around 1.7425 but Dollar�s momentum could break these marks easily. 1.73 is the absolute key level as a break below this mark could send it towards its lowest level in nearly two years and make it very hard for it to reverse its losses.

AUD/USD - The Australian Dollar has 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 0.7655 mark with selling orders lined above the 0.77 mark all the way up to the 0.78 mark. Only a break above it raises hopes of a Aussie rally otherwise further losses are likely.

Kunal Sharma

Forex Analyst

Easy Forex Pty Ltd. (Australia)

E-mail: kunal@easy-forex.com

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