Australian FOREX Daily Outlook 23/01/2006

MARKET SUMMARY – 23/01/06(03.00GMT)

• The Dollar was weaker against the major currencies on Friday night, weighed down by rising Iranian tensions. A senior Iranian official confirmed that the country had started to transfer assets from European accounts to other foreign banks ahead of possible UN sanctions. The weakness in the dollar continued in the Asian session today as the dollar hit its lowest levels in four months against the euro and the Swiss franc on Monday. Traders said that investors were also favoring safe-haven assets such as the Swiss franc over the dollar as worries about an escalation in the standoff between Iran and the West over Tehran‘s nuclear programme reduced investors’ appetite for risk. Also hurting the dollar is a consensus in the market that the Fed will end its tightening after one more rate hike. In other markets, US stocks recorded their largest fall in almost three years on Friday, pressured by higher oil prices, geopolitical tensions and disappointing earning results. The Dow Jones fell by 213pts while the NASDAQ lost 54pts. Crude oil soared on Friday in response to the Iranian situation. Crude oil rose by US$1.29 to US$68.48 a barrel. On the data front, the preliminary reading of University of Michigan consumer confidence for January was 93.4, up from 91.5 in December and compared to the consensus expectation of 92.5.

• The Euro rallied from 1.2044 to 1.2144 on Friday, before closing in New York at 1.2135. The Euro rally was on the back of the Iranian situation escalating and the buying continued in the Asian session today as Euro extended its gains on the dollar to 1.2245. On the data front, in the Eurozone later today sees the release of the German CPI. The market is looking for the annual inflation to come in at 2.2%.

• The Japanese yen strengthened against the dollar from JPY115.65 per US dollar to JPY114.95, before closing in New York at JPY115.20. The benefited on the back of general dollar weakness in addition to comments by BoJ Governor Toshihiko Fukui’s which sounded upbeat on the prospect of ending Japan’s ultra easy monetary policy, leaving the door open for possible rate hikes. The yen continued gaining against the dollar in the Asian session as it traded to JPY114.50 per US dollar.

• The Sterling rallied from 1.7537 to as high as 1.7724, before closing in New York at 1.7705. Sterling benefited from UK retail sales which rose by 0.4% in December. Although this was in line with market expectation, it was the fifth consecutive monthly rise and lessens the chances that the Bank of England will cut interest rates in the coming months. Sterling continued its climb in the Asian session trading to a high of 1.7830.

• The Aussie traded in a tight range of 0.7462 to 0.7498, before closing in New York at 0.7475. Aussie broke higher in the Asian session today as it traded to a high of 0.7542. Gold hit a new 25 year in New York trade before succumbing to profit-taking. Gold traded to $US$568.50 an ounce before ending US$5 lower at US$554.00.

TECHNICAL COMMENTARY

• Euro – 1.2200

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 1.2226 (61.8% retracement of the 1.2590 to 1.1638 decline (Jan 6) followed by 1.2365 (76.4% retracement of the 1.2590 to 1.1638 decline).

• Yen – 114.90

Initial support is located at 114.62 (Jan 17 low) followed by 113.79 (Jan 16 low). Initial resistance is located at 115.91 (Jan 17 high &amp trendline resistance area) followed by 116.35 (61.8% of 118.16-113.41 decline and near Jan 5 high).

• Pound – 1.7795

Initial support is located at 1.7527 (Jan 19 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 – 0.7525

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7446 (38.2% retracement of the 0.7235-0.7577 high) followed by 0.7406 (50.0% retracement of the 0.7235-0.7577 high).