Australian FOREX Daily Outlook 31/03/2006

MARKET SUMMARY –31MAR06 (05:00GMT)

• The Dollar fell sharply against the major currencies overnight as a rumor circulated that the Bush administration was thinking of ending the strong dollar policy. There was also a report in the NY times indicated that the incoming White House Chief of Staff wants Snow to be replaced with someone who can present Bush’s message more forcefully. Another reason for the dollar weakness is talk of central banks looking at diversifying their foreign exchange reserves, reigniting concern about the US trade deficit. On the data front, the final reading for fourth quarter GDP growth was 1.7%, as expected. A slight upward revision from the earlier reported 1.6%. The core price index for personal consumption expenditures was revised up to 2.4% from 2.1%. The revision reinforces the Federal Reserve’s concern over inflation pressures. US initial jobless claims were 302,000 in the week ending March 26, pointing to continued strength in the US labour market. In other markets, US shares fell following the revision of the GDP deflator. The Dow Jones was down 65pts while the NASDAQ was up 3pts. Crude oil rose overnight following more supply concerns after Iran rejected the UN Security Council’s demand to suspend uranium enriched work. Crude oil rose by US70c to US$67.15 a barrel. Looking ahead, US Core personal consumption deflator and consumer sentiment is due.The University of Michigan consumer confidence is expected to stabilize at 86.7.

• The Euro traded up from 1.2045 to a high of 1.2168, before closing near its highs in the New York session. In the Eurozone yesterday, French consumer confidence slid more than anticipated in March after improving in February. German unemployment “not as good as we really hoped for ” says Labour Minister Muentefering ……Germans out of work rose 30,000 in March , unemployment rises to 11.4% , total unemployed just under 5 million.
  
• The Japanese yen traded in a range of 117.10 to 117.89 versus the dollar, before closing at 117.30 in the New York session. In Japan this morning, CPI inflation was slightly less than expected, with core CPI growing by 0.5% y/y against market consensus of 0.6% y/y. The labour market data was quite positive with the unemployment rate dropping to 4.1%, which is the lowest since July 1998 and much better than forecasts of 4.4%.

• The Sterling rallied from 1.7338 to a high of 1.7483, before closing at 1.7465 in the New York session. Nationwide saying that UK house prices jumped 1.1% in March, implying 5.3% on the year, strongest since May 2005.

• The Aussie rallied strongly from a low of 0.7084 to trade as high as 0.7159, before closing near its highs in the New York session. The Aussie benefited from the weak dollar and strong rally in base metals. Today in Australia, the currency rallied further on the back of some better than expected data results. February retail sales rose 0.7 percent, compared with a forecast 0.3 percent increase. February building approvals rose 2.2 percent, compared with a forecast 1.4 percent increase. February private-sector house approvals rose 5.2 percent. Private sector credit rose 1.4 percent, compared with a forecast 1.0 percent increase. Housing credit rose 1.3 percent.
  
• Gold/Silver: Records tumbled in precious metals markets on as gold raced to a new 25-year peak, platinum hit a record high and silver spiked to its highest in more than 22 years. Traders said fund managers pumped more money into commodities before the end of the quarter, further feeding a long-running bull market. Precious metals also got support from technical buying, strong base metals and a softer dollar, with prices seen heading towards their next big upside targets. Gold climbed to $586.40 an ounce, the strongest since January 1981, closing in Europe at $585.60/586.50. Spot silver jumped to $11.50 an ounce, the highest since September 1983, and was last at $11.44/11.47, supported by speculative buying on hopes that an exchange-traded fund (ETF) will soon be launched.

TECHNICAL COMMENTARY

• Euro 1.2160

Initial support at 1.2020 (Mar 30 low) followed by 1.1979 (Mar 29 corrective low). Initial resistance is now located at 1.2209 (Mar 17 reaction high) followed by 1.2324 (Jan 25 reaction high).

• Yen 117.50

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 – 1.7450

Initial support at 1.7308 (Mar 24 reaction low) followed by 1.7230 (Mar 10 reaction low). Initial resistance is now at 1.7539 (Mar 28 corrective high) followed by 1.7626 (Mar 6 key reaction high).

• Aussie – 0.7100

Initial support at 0.7058 (Mar 30 low) followed by 0.7015 (Mar 29 corrective low). Initial resistance at 0.7215 (Mar 28 reaction high) followed by 0.7235 (38.2% retracement of the 0.7590 to 0.7015 decline).