Australian FOREX Weekly Outlook 22/03/2006

22/03/06

last week’s recap

The Euro closed last week at 1.2196 having started the week at 1.1913. The USD/JPY closed last week at 115.82 having started the week at 118.96. The Sterling closed last week at 1.7568 having started the week at 1.7264. The Aussie closed last week at 0.7348 having started the week at .7346.

The Dollar was mixed against the major currencies last week, losing ground versus the European currencies and Japanese yen but gaining against the commodity based currencies. On the data front, US economic data results were and triggered a dramatic shift in US rate expectations, with investors ruling out a rise in rates beyond 5%. The Euro rallied almost 2% against the dollar, as hawkish rhetoric continued to come out of the ECB indicating further rate rises down the track. The Japanese yen once again dominated market interest, gaining ground against all majors amid prospects that Japanese yields will rise following the BoJ’s announcement that it will move away from its policy of quantitative easing, ending its five year experiment with zero interest rates. Five year highs on the FTSE saw the Sterling rally to 1.7600. The strength in the Sterling came after the release of economic data eliminated the threat of lower interest rates and returned focus towards the possibility of higher rates by the end of 2006. The Aussie dollar continued to struggle against the greenback last week on the back of softer commodity prices, closing at its lowest level since Dec 2005.

The week ahead

Analysts expect the data to be released over the coming week is likely to present a somewhat more subdued picture of global economic activity than what the market has been used to in recent weeks. This is particularly the case in the US, where there should be further evidence of a slowdown in the housing market. In the Eurozone, the recent correction lower in the ZEW survey may bode for a period of soft survey data.

In the States the Chicago Fed index of national economic activity (Wednesday) is likely to have decelerated in February as industrial production and housing related indicators slowed. Headline US durable goods orders plunged 9.9% m/m in January due to volatility in the transport sector. US durable goods (Friday) are expected to rebound in February. This week should provide further evidence that the US housing market is cooling off with both existing home sales (Thursday) and new home sales (Friday) data for February due to be released. Slowing mortgage applications and declining pending home sales point to further deceleration in existing home sales for February. We will provide our previews of these data releases in the daily summary.

In the Eurozone German inflation (regional data is expected to be released from Thursday) is forecast to ease in March, with the key factor an easing in energy price inflation. However, analysts believe that a slight drop in business sentiment and inflation should not change the outlook for ECB monetary policy. In the UK the Bank of England Minutes (Wednesday) are unlikely to cause much of a stir as the Bank left rates on hold as expected this month, though as usual they will be scrutinized for any evidence of an underlying bias within the committee. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

Euro 1.2090

Initial support at 1.2075 (38.2% retracement of the 1.1859 to 1.2209 advance) followed by 1.2033 (Mar 16 low &amp 50% retracement of 1.1859 to 1.2209 advance). Initial resistance is now located at 1.2166 (Mar 21 high) followed by 1.2209 (Mar 17 high).

• Yen 117.25

Initial support is located at 116.24 (March 21 low) followed by 115.50 (Mar 20 low). Initial resistance is now at 117.79 (61.8% retracement of the 119.21 to 115.50 decline) followed by 117.90 (Mar 16 reaction high).

• Pound – 1.7470

Initial support at 1.7457 (Mar 21 low) followed by 1.7416 (Mar 15 low). Initial resistance is now at 1.7563 (Mar 21 high) followed by 1.7626 (Mar 6 reaction high).

• Aussie – 0.7170

Initial support at 0.7147 (Mar 21 low) followed by 0.7060 (76.4% retracement of the 0.6773 to 0.7990 advance). Initial resistance at 0.7220 (Mar 21 high) followed by 0.7285 (Mar 20 high).