Australian FOREX Daily Outlook 08/02/2006

MARKET SUMMARY –08FEB06 (05:00GMT)

• The Dollar was relatively stable against the major currencies with the exception of the Japanese yen, where it weakened quite significantly. Given there were no data release in the States traders and investors focused on commodity prices which plunged in response to heavy profit taking by these global investment funds. The sell-off in commodity markets weighed on mining and energy stocks in the US, dragging key indexes lower. The Dow Jones closed down 48pts while the NASDAQ was down 16pts. Oil prices also fell sharply with investors more confident that crude supplies will be sufficient to meet growing demand. Crude oil fell by US$2.02 a barrel or 3.1% to US$63.09 a barrel.

• The Euro traded in a range of 1.2011 to 1.1946, before closing in New York at 1.1965. The Euro was weighed down by German industrial production for December coming in at down 0.5% below the +0.7% consensus. The data follows softer than expected German orders data this week. Euribor futures have ticked slightly higher in price in reaction.

• The Japanese yen was the big mover in the currency markets. The Japanese yen rose from JPY118.98 per US dollar to JPY117.62, before ending in New York near JPY118.08. The move is in response to expectations that the Bank of Japan would signal an end to the “quantitative easing” policy at Thursday’s meeting.

• The Sterling was sold off to as low as US$1.7405 after a weaker-than-expected UK retail sales data. The markets had turned its attention on this week’s Bank of England meeting for clues on UK interest rates, which look set to keep interest rate on hold for the sixth month running.

• The Aussie traded in a range of 0.7405 to 0.7447, closing near the day’s lows in New York. Today in Australia, the RBA left the cash rate unchanged at 5.5%. The Aussie has held up relatively well considering the large fall in base metals and commodity prices. Gold recorded its biggest one day fall in 12 years on heavy profit-taking by global investment funds. Gold fell by US$19.50 an ounce to US$554.80 an ounce.

TECHNICAL COMMENTARY

• Euro 1.1970

Initial support at 1.1945 (Feb 6 low) followed by 1.1900 (61.8% retracement of 1.1638 to 1.2324). Initial resistance is now located at 1.2047 (Feb 6 high) followed by 1.2113 (Feb 2 reaction high).

• Yen 118.05

Initial support is located at 117.39 (38.2% retracement of the 114.17 – 119.38 rally) followed by 116.69 (Jan 31 corrective low). Initial resistance is now at 119.38 (Feb3 high) followed by 121.07 (Dec 12 high).

• Pound – 1.7455

Initial support at 1.7404 (Feb 7 low) followed by 1.7320 (76.4% retracement of the 1.7129 to 1.7937 advance). Initial resistance is now at 1.7578 (38.2% retracement of gains from 1.7860) followed by 1.7643 (Feb 6 high).

• Aussie – 0.7400

Initial support at 0.7369 (61.8 retracement of the 0.7233 to 0.7590 advance) followed by 0.7317 (76.4% retracement of the 0.7233 to 0.7590 advance). Initial resistance at 0.7481 (Jan 30 low) followed by 0.7590 (Feb1 high).