Australian FOREX Daily Outlook 17/01/2006

MARKET SUMMARY – 17/01/06(03.00GMT)

• The Dollar rose against the major currencies in the European session overnight. US markets were closed for public holiday. Looking ahead, and Industrial production/Capacity Utilisation and New York Fed survey are released in the States later today. In November, US industrial production recovered further following the hit it took from the US hurricanes. The recovery is expected to continue in December, with a 0.6% rise expected, bringing annual growth to 2.7% (down from 2.8% in November). Capacity utilisation is on the rise again following a small slip on the back of the hurricanes. The Fed has said that, “possible in resource utilisation have the potential to add to inflation pressures”. So developments in capacity utilisation bear close monitoring. The market expects a further rise in December to 80.5%. The New York Fed survey is expected to come in at 21.

• The Euro fell from 1.2173 to 1.2108 in the European session and finally closed near its low at 1.2120. Trading was technically driven with market players reluctant to take big positions due to holiday in the U.S. for Martin Luther King Day. In the Eurozone later today will see the release of the German CPI. The market is expecting CPI to come in at 0.8% m/m and 2.1% yoy.

• The Japanese yen slipped against the dollar and the euro as speculators cut back their holdings. The yen fell from JPY114.10 per US dollar to 114.90, closing near its lows.

• The Sterling weakened from 1.7794 to 1.7643 before closing at 1.7680. In the UK overnight, producer input prices rose 0.9% in December versus the expectation of a 0.6% rise. Annual input price inflation is now at 17.2% – the highest rate on record. Fuel prices were a key driver of this increase, up 56.3% on the year. Core prices (excluding food, beverages, tobacco and petroleum products) also rose a solid 10.9% over the year. By contrast, producer output prices fell 0.2%, bringing output inflation to a modest 2.4%. The data indicates that firms continue to struggle to pass higher costs through to consumers, with profit margins being squeezed as a result. The UK manufacturing sector continues to languish and is currently the key risk to the economic growth outlook.

• The Aussie fell from 0.7570 to 0.7540 before closing near its lows. The Aussie was unable to make further gains despite further gold strength. Gold rallied on threats of a trade sanction against Iran and rumors that Middle-Eastern central banks may be increasing their gold reserves. The spot gold quote rose $6.30 an ounce to US$561.80,

TECHNICAL COMMENTARY

• Euro – 1.2110

Initial support at 1.2007 (Jan 12 low) followed by secondary support at 1.1980 (50% retracement of the 1.1778 to 1.2181 advance). Initial resistance is now located at 1.2181 (Jan 6 high) followed by 1.2226 (61.8% retracement of the 1.2590 to 1.1638 decline).

• Yen – 114.95

Initial support is located at 113.73 (former resistance from Jul 20) followed by 113.53 (61.8% retracement of the 108.76 to 121.41 advance). Initial resistance is located at 115.23 (38.2% retracement of the 118.18 to 113.41 decline) followed by 115.52 (former support from Dec 19).

• Pound – 1.7660

Initial support is located at 1.7577 (Jan 12 low) followed by 1.7516 (Jan 11 low). Initial resistance is located at 1.7810 (Dec 14 high) followed by 1.7901 (Oct 27 high).

• Aussie – 0.7535

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7481 (Jan 11 low) followed by 0.7444 (Jan 5 low).