Australian FOREX Daily Outlook 17/03/2006

MARKET SUMMARY –17MAR06 (05:00GMT)

• The Dollar continued to weaken against the major currencies overnight. The greenback was weaker due to concerns about future interest rate hikes easing. US headline inflation rose as expected 0.1% in February to be 3.6% higher than a year ago. Core inflation rose 0.1%, less than the expected 0.2% rise. Core inflation remained 2.1% higher than a year ago. February housing starts fell 7.9% to an annual pace of 2.1 million, higher than the expected 2.0 million pace. The Philadelphia Fed index fell to 12.3 in March from 15.4 in February. Comments in Asia yesterday by Fed President Janet Yellen left plenty of room for disappointment on the rates front in coming weeks. Yellen indicated that the US economy may have gone beyond full employment already and said additional inflationary pressures would be particularly unwelcome with inflation already at the upper end of her comfort zone, but also said she expects inflations and growth to slow going forward. In other markets, the US blue chip Down Jones index rose overnight. The rise followed the core CPI lifting less-than-expected in February, easing concerns of future interest rate hikes in the US. The Dow Jones closed up 43 points while the NASDAQ was down 12pts. Crude oil prices lifted on Thursday following worries about summer gasoline supplies. Crude oil rose by US$1.41 to US$63.58 a barrel. Looking ahead, February industrial production and March University of Michigan consumer sentiment survey is due out later today in the States.On the industrial production front markets are expecting a rebound in output for February after January’s 0.2% drop. Market forecasts are centered on a 0.7% rise in February as output lifts in response to improving demand and business investment. The University of Michigan consumer sentiment index is expected to post a rise in March. Markets are expecting the headline index to lift to 89.3 from 86.7 in February.

• The Euro rose from 1.2045 to trade as high as 1.2189, before closing near its highs in the New York session. Apart from the weaker dollar across the board, the Euro also rose due to a story on Market News indicating the ECB aims to raise rate gradually to a “neutral level” and that the consensus on what would constitute a neutral rate is around 3.5%.
• The Japanese yen traded in a range of 116.80 to 117.67 versus the dollar, before closing near its highs in the New York session. Comments by BoJ Governor Fukui yesterday contributed to a weakening in the JPY and a rally in the bond market. Fukui said “it was too early to discuss when to end the zero interest rate policy, as we have only just ended our quantitative framework”.

• The Sterling rose from 1.7442 to a high of 1.7595, before closing at 1.7575 in the New York session. UK retail sales were reported up 0.5% m/m, better than the +0.4% consensus, though a revision lower to the prior month’s numbers kept the y/y rate in line with expectations. The RICS house price balance surprised to the upside.
• Gold was modestly higher in response to a softer greenback. Gold rose by US$1.00 an ounce to US$556.40 an ounce.

TECHNICAL COMMENTARY

• Euro 1.2170

Initial support at 1.2033 (Mar 16 reaction low) followed by 1.2005 (Mar 14 reaction low). Initial resistance is now located at 1.2190 (Jan 31 high) followed by 1.2206 (76.4% retracement of 1.2324 to 1.1825).

• Yen 116.70

Initial support is located at 116.34 (76.4% retracement of 115.45 to 119.21) followed by 116.04 (76.4% retracement of 115.45 to 119.21). Initial resistance is now at 117.90 (Mar 16 reaction high) followed by 119.41 (Feb 3, 2006 high).

• Pound – 1.7560

Initial support at 1.7416 (Mar 15 low) followed by 1.7230 (Mar 10 low). Initial resistance is now at 1.7626 (Mar 6 high) followed by 1.7667 (61.8% retracement of 1.7937 to 1.7230).

• Aussie – 0.7360

Initial support at 0.7302 (Mar 10 low) followed by 0.7233 (Dec 27, 2005 low). Initial resistance at 0.7378 (Mar 9 high) followed by 0.7406 (Mar 7 high).