Australian FOREX Daily Outlook 29/03/2006

MARKET SUMMARY –29MAR06 (05:00GMT)

• The Dollar surged higher against major currencies overnight after the Fed raised the cash rate by 25 basis points to 4.75% and retained the key phrase “some further policy firming may be needed”. This left the markets with a sense that they retain a firm tightening bias. News was also positive on the data front with US consumer confidence up 4.5pts to 107.2 in March, close to a four-year high. The market had expected a relatively flat result. In other markets, US shares turned sharply lower following the Federal Reserve’s policy statement. The Dow Jones index closed down 95pts while the NASDAQ was down 11pts. Crude oil prices surged higher by US$1.91 to US$66.07 a barrel.
  

• The Euro traded to a high of 1.2107 overnight, mainly due to stronger than expected German IFO number. However, the Euro traded back down to 1.1996 after the Fed decision to close near its lows in the New York session. The German IFO surprised strongly on the upside of expectations in March. The headlines index rose to 105.4 from an upwardly revised 103.4 in February. It was the highest level since 1991.
  
• The Japanese yen traded in a range of 116.62 to 118.07 versus the dollar, before closing at 117.90 in the New York session. Tomorrow in Japan sees the release of industrial production. The market is looking for industrial production to rise for the seventh month in a row.

• The Sterling traded in a range of 1.7427 to 1.7537, before closing near its lows in the New York session. MPC members, King, Nickell and Barkers seem to cancel each other out in their testimony to parliament. King sees risks in either direction re growth, inflation and consumption. Nickell still thinks the next move in rates in the UK is a cut, while Barker sees “sympathy” with some of Nickell’s views but says she won’t be voting with him. No change to UK interest rates for a while yet the general conclusion.

• The Aussie traded in a range of 0.7042 to 0.7120, before closing near its low in the New York session.
  
• Gold: renewed investment fund buying in a broad range of commodities kept precious metals in an upward groove, with silver matching a 22-year high and gold moving to within $5 of its recent 25-year peak. Silver equaled the $10.92 mark hit on Monday, and some analysts saw it pushing through the $11-an-ounce level on interest in a new silver-backed investment fund. Gold hit $569.10, its highest since March 3, with a quarter-century peak of $574.60 now the next objective.

TECHNICAL COMMENTARY

• Euro 1.2000

Initial support at 1.1951 (Mar 24 reaction low) followed by 1.1859 (Mar 10 reaction low). Initial resistance is now located at 1.2110 (61.8% retracement of the 1.2209 to 1.1951) followed by 1.2166 (Mar 21 high).

• Yen 117.85

Initial support is located at 116.25 (March 28 low) followed by 115.50 (Mar 20 reaction low). Initial resistance is now at 118.51 (Mar 24 reaction high) followed by 119.21 (Mar 13 high).

• Pound – 1.7430

Initial support at 1.7308 (Mar 24 reaction low) followed by 1.7230 (Mar 10 reaction low). Initial resistance is now at 1.7597 (Mar 16 reaction high) followed by 1.7626 (Mar 6 reaction high).

• Aussie – 0.7020

Initial support at 0.7000 (Psychological support) followed by 0.6933 (Sept 15, 2004 low). Initial resistance at 0.7152 (Mar 24 high) followed by 0.7220 (Mar 21 high).