Tuesday March 1, 2005 - 09:58:29 GMT
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FX Daily Technical Strategy
Dollar rises on record Australia c/a deficit
The dollar climbed on Tuesday after Australia posted a record current account deficit, sending the Australian currency down and sparking broader buying of the dollar.
The yen also strengthened against the euro and other currencies after data showed unemployment in Japan stayed at a six-year low while household spending jumped, adding to a string of upbeat news on the growth outlook.
Australia's current account deficit widened to A$15.17 billion in the fourth quarter. That was much bigger than forecasts for a deficit of A$14.2 billion and means the country will need to pull in even more foreign capital to keep its currency from falling.
The Australian dollar quickly succumbed to its U.S. counterpart, falling about 0.5 percent to around 78.80 U.S. cents.
As the Australian dollar's slide extended, selling of other currencies for the U.S. currency drove the euro below key technical support levels and triggered stop-loss buying of the U.S. dollar.
By 06h15 GMT, the euro had bounced back to $1.3195, down 0.3 percent after skidding to near $1.3170. The dollar was down slightly at around 104.55 yen after briefly gaining.
Japan's unemployment rate stayed at 4.5 percent in January, its lowest level since 1999. Household spending surged 2.6 percent in the same month, the biggest rise in six months and rebounding from a 3.8 percent decline in December.
The yen has rebounded this week as data suggest Japan's economy is pulling out of last year's mild recession, while a warning from the Bank of Japan chief on Monday reminded markets that zero interest rates will end at some point.
The euro dipped to 137.90 yen, down from a two-month high of around 139.40 yen hit early on Monday. Both the Australian and New Zealand dollars also retreated against the yen.
The market was looking ahead to major economic data releases this week and to more congressional testimony from Federal Reserve Chairman Alan Greenspan.
Analysts have said the dollar's outlook remained unclear, with market participants divided between the positives for the U.S. currency of rising interest rates and solid growth and the negative of the U.S. current account and budget deficits.
Two reports this week, on U.S. manufacturing activity from the Institute for Supply Management and on monthly payrolls, are expected to highlight robust U.S. economic growth.
With the market already eyeing steadier Fed rate increases, unexpectedly strong figures that boost the likelihood of the central bank speeding up the pace of credit tightening would be needed to help the dollar, analysts said.
The Fed has already lifted official rates by a quarter-percentage point six times since June to 2.50 percent.
Central banks in Australia and Canada are slated to announce rate decisions on Tuesday, while the European Central Bank's decision is on Thursday.
The ECB and the Bank of Canada are expected to leave rates at 2.0 and 2.5 percent respectively, while most analysts expect the Reserve Bank of Australia (RBA) to lift its cash rate by a quarter percentage point to 5.5 percent.
The Bank of Canada's decision is due at 14h00 GMT, while the RBA will announce any change in interest rates at 22h30 GMT.
STERLING/DOLLAR: $1.9136 break defines $1.9019 low and short-term risk ahead of extended gains towards $1.9303 next.
EURO/DOLLAR: ... we have been targeting $1.3310 to $1.3465 as resistance and a potential turning point within the range. Prices are again getting towards this target zone after the latest pullback held over the U.S:$1.3090 key support zone. In the near term prices just cannot break through $1.3275/80, testing this area 4 times before seeing a sharp sell-off through the Asian session. At this stage we still believe the action is correction while over $1.3100/1.3085 and expect prices to move into a range for a while.
DOLLAR/SWISS FRANC: There is a risk that we are going to merely develop a larger 1.1575 to 1.1745 trading range for a while. If we start to break through those upper levels then the risk increases that we are already seeing a larger correction process of the entire 1.2265 to 1.1575 fall.
DOLLAR/YEN: The recent price action confirms to us that this market is going to stay range bound for a while between 102 and 107... Looking at the near term the rejection of channel resistance at 105.65 should see the market stay under pressure towards 104/103 as long as we hold under 105.15.
@15h00 GMT: U.S. February Manufacturing ISM, U.S. January Construction Spending
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