Australian FOREX Daily Outlook 23/02/2006

MARKET SUMMARY –23FEB06 (05:00GMT)

• The Dollar continued to play the range game overnight versus the major currencies as the US CPI failed to inspire direction. The US CPI rose more than expected in January. It was up 0.7% on a monthly basis, compared to the consensus of 0.5%. Annual CPI inflation rose to 4.0% from 3.8%. The key upward contributions came from food (+0.5%) and energy prices (+5.0%). Accordingly, the core CPI rose a more moderate 0.2%, in line with expectations. In other data, mortgage applications purchase index rose 4.3% to 408.7 in the week of February 17 following a 7.9% decline in the previous week. In other markets, US shares rose overnight as investors were encouraged by lower oil prices and a moderate reading on underlying inflation. The Dow Jones closed up 68pts while the NASDAQ was up 20pts. Looking ahead and initial jobless claims is expected to rise back above 300k in the states later today.

• The Euro traded in a range of 1.1861 to 1.1927, before closing at 1.1915 in the New York session. In the Eurozone overnight, German GDP was confirmed at flat in Q4 which was below initial expectations. However, French INSEE business confidence survey came in firmer than expected, with the index rising to 105 from 103 and above the 104 consensus. The good news is that French Consumer Spending rose 0.9% in January or up 2.5% from a year ago. The Italian consumer confidence was also strong, coming in at 110 from 106.5 in January and is the best result since September 2005. Meanwhile, the drumbeat of hawkish ECB commentary continues, with board member Gargans noting that Eurozone growth is accelerating and underlining the need for vigilance. In the Eurozone, the German IFO business climate index will be released later today with the market expecting 101.5.

• The Japanese yen traded in a range of 118.30 to 118.90 versus the dollar, before closing at 118.55 in the New York session. In Japan today, the tertiary sector activity index, which gauges conditions in the services sector, rose 0.2 percent in December from the previous month. That compared with a forecast of a 0.3 percent rise. Japan also logged a monthly trade deficit for the first time in five years in January, but economists saw little cause for concern as high oil prices boosted imports and the Lunar New Year reduced shipments to Asia. Japan‘s trade balance fell to a deficit of 348.9 billion yen ($2.95 billion) in January from a surplus of 914.0 billion yen in December. It compared with a consensus forecast by analysts of a 100 billion yen deficit. Forecasts had centered on a deficit of 100 billion yen.

• The Sterling traded in a range of 1.7375 to 1.7467, before closing at 1.7440 in the New York session. In the UK overnight, the MPC minutes showed an 8 to 1 vote for steady policy, in line with consensus expectations after relatively hawkish comments from Committee member Kate Barker earlier this week scuttled projections for a 7-2 split. The CBI industrial trends in the UK came in firmer than expected as well, improving to -18 from -28 and short sterling implied yields moved 5 to 6 basis points higher as rate cut risk is once again removed from the curve.

• The Aussie traded down from 0.7394 to 0.7344 versus the dollar, before closing in New York at 0.7365. In Australia today, business investment boomed last quarter, helping to offset weakness in the consumer and housing sectors while restraining inflation by expanding the economy’s productive power. The data showed capital expenditure by the private sector jumped 9.2 percent in the December quarter, way above market expectations for a 3.7 percent gain. The figures are likely to boost estimates of overall economic growth for the last quarter.

TECHNICAL COMMENTARY

• Euro 1.1900

Initial support at 1.1848 (Feb 16 low) followed by 1.1800 (76.4% retracement of 1.1638 to 1.2324). Initial resistance is now located at 1.1976 (Feb 20 high) followed by 1.2027 (Feb 10 high).

• Yen 118.20

Initial support is located at 117.32 (Feb 17 low) followed by 116.75 (Feb 15 low). Initial resistance is now at 119.01 (Feb 21 high) followed by 119.41(Feb 3 high).

• Pound – 1.7420

Initial support at 1.7306 (Feb 16 low) followed by 1.7278 (Feb 14 low). Initial resistance is now at 1.7491 (Feb 15 high) followed by 1.7577 (Feb 10 high).

• Aussie – 0.7350

Initial support at 0.7317 (Feb 17 low) followed by 0.7233 (Dec 27, 2005 low). Initial resistance at 0.7397 (Feb 22 high) followed by 0.7444 (Feb 15 high).