Australian FOREX Daily Outlook 17/02/2006

MARKET SUMMARY –17FEB06 (05:00GMT)

• The Dollar was largely unchanged overnight against the major currencies despite further comments by Bernanke and a number of data releases. Bernanke stated that the Federal Reserve is not concerned with the implications for future economic activity from the inverted yield curve. On the data front, US housing starts surged 14pct in January to an annualized rate of 2,276k. The market had expected 2,020k and the rise was the strongest since January 1973. Initial jobless claims were slightly higher than expected, coming in at 297,000 bringing the 4 week moving average to 279,875, the lowest level since April 2000. The Philly Fed survey surged to 15.4 in February from 3.3 in January, and compared to the expectation of 9.1. In other markets, US shares rose after computer and printer maker Hewlett-Packard and retailer J.C. Penny Co both reported better-than expected earnings. The Dow Jones closed up 61pts with the NASDAQ up 18pts. Crude oil prices rebounded after dropping 15% since the start of February. Crude oil rose by US$0.86 to US$58.46 a barrel. Looking ahead and US PPI and University of Michigan consumer sentiment are released later today in the States. In January, a 0.2% increase is expected in the core CPI, the largest rise since July 2005. The headline PPI is expected to increase a more modest 0.1%, on the back of a decline in natural gas prices. The University of Michigan consumer sentiment is expected to post a rise to 92.0 from 91.2 in January.

• The Euro traded in a range of 1.1853 to 1.1900 versus the dollar before closing near its highs in the New York session.

• The Japanese yen traded in a range of 117.60 to 118.00 versus the dollar, before closing near its highs in New York. In the Asian session today, the yen initially strengthened against the dollar after stronger than expected GDP figures but the gain was short lived as it fell below JPY118.00 per US dollar. Japan‘s economy grew 1.4 percent in October-December in real price-adjusted terms, more than expected, as it continued to recover on strong domestic demand and a pick-up in exports. The growth followed an upwardly revised 0.3 percent expansion in the July-September quarter. Data indicated that on an annualised basis gross domestic product (GDP) grew 5.5 percent in October-December in real price-adjusted terms. Economists’ forecasts had centered on a quarterly expansion of 1.2 percent, or 5.0 percent annualised.

• The Sterling traded in a range of 1.7310 to 1.7405, before closing at 1.7390 in the New York session. UK retail sales plunged in January. The market’s expectation of a 0.2% fall proved overly optimistic, with sales falling by 1.3%.

• The Aussie traded in a tight range of 0.7360 to 0.7390, closing near its highs in New York. In Australia today, RBA Governor Macfarlane presented his semi-annual testimony to Parliament. McFarlane said that inflation may face upward pressure and that a rate rise was more likely than a cut. The Aussie rallied to 0.7415 on these comments before settling back down around 0.7390.

• Gold traded higher today, from $535 levels to $545. Gold prices have been volatile in the past two weeks, hitting 25 year highs of $574.60 an ounce then retreating by $40only to rebound again. Soft oil prices and comments by Bernanke put pressure on the metal. Traders say that the market is generally gold bullish however the risk of a downward correction is still quite high.

TECHNICAL COMMENTARY

• Euro 1.1880

Initial support at 1.1860 (Feb 14 low) followed by 1.1800 (76.4% retracement of 1.1638 to 1.2324). Initial resistance is now located at 1.2027 (Feb 10 high) followed by 1.2047 (Feb 6 high).

• Yen 117.90

Initial support is located at 116.76 (Feb 15 low) followed by 116.41 (50% retracement of the 113.41 to 119.41 advance). Initial resistance is now at 118.28 (Feb 13 high) followed by 118.96 (Feb 10 high).

• Pound – 1.7360

Initial support at 1.7284 (Feb 14 low) followed by 1.7129 (Dec 28, 2005 low). Initial resistance is now at 1.7486 (Feb 15 high) followed by 1.7577 (Feb 10 high).

• Aussie – 0.7380

Initial support at 0.7356 (Feb 14 low) followed by 0.7317 (76.4% retracement of the 0.7233 to 0.7590 advance). Initial resistance at 0.7442 (Feb 15 high) followed by 0.7501 (Feb 6 high).