Australian FOREX Daily Outlook 11/05/2006

MARKET SUMMARY –11MAY06 (05:00GMT)

• The Dollar trader lower against the major currencies in the early part of the overnight session hitting one year lows versus the Euro. However the dollar recovered to finish stronger across the board, particularly against the Japanese yen. The two key reasons for the dollar rebound was a more hawkish statement by the Fed and the Treasury FX report not describing China as a “manipulator”. The Fed raised rates by 25bp as expected and tweaked the accompanying statement from “some further policy firming may be needed” with “some further policy firming may yet be needed. The FX Treasury report stepped away from branding China a currency manipulator, as some in the market had expected. However, the report till used strong language towards China urging more flexibility of the Yuan. In other markets, US shares were relatively flat with the Dow Jones up by 3pts while the NASDAQ fell by 18pts. Crude oil rose by US$1.44 overnight to US$72.13 a barrel. Looking ahead and retail sales is due out later today in the States. Headline retail sales are expected to grow by 0.8% in April. Excluding sales of cars, sales are expected to grow by 0.8%.
  

• The Euro traded in a range of 1.2753 to 1.2832, before closing at 1.2785 in the New York session. On the data front, French industrial production was reported up 1.6% m/m, above the 1.0% consensus. There were also comments from German Bundesbank President Weber saying further tightening was needed.
  

• The Japanese yen traded in a range of 110.13 to 111.24 versus the dollar before closing at 110.50 in the New York session.
  
• The Sterling traded in a range of 1.8604 to 1.8728, before closing at 1.8650 in the New York session. The Bank of England Quarterly Inflation Report was released overnight and downgraded its growth forecasts for 2007 (GDP expected to slow to 2.75% in Q4 2007, from 3.0% in Q1 2007). The BoE expects inflation to rise over the 2% target band this year before moderating next year. U.K. trade balance, earlier in the session, came lower than expectations and from previous month, however, didn’t get much attention from the market as most traders held back ahead of Fed rate announcement.
  

• The Aussie traded in a range of 0.7710 to 0.7750, before closing at 0.7740 in the New York session. Today in Australia the unemployment rate rose to 5.1 percent in April, as expected. April employment fell by a seasonally adjusted 3,200 after two months of unexpected strength, and compared to forecasts that had centered on a 5,000 jobs increase. But full-time employment jumped by 22,700.
  
• Gold reached new 25 year high above 704USD an ounce, over dollar weakness, higher oil price also talks in the market that China will increase its gold reserves even though many suspect it wouldn’t do so at these high levels.

TECHNICAL COMMENTARY

• Euro 1.2730

Initial support at 1.2660 (May 9 low) followed by 1.2571 (May 4 corrective low). Initial resistance is now located at 1.2835 (May 10 high) followed by 1.2889 (50% retracement of the 1.3663 – 1.1638 decline).

• Yen 111.20

Initial support is located at 110.00 (Psychological support) followed by 109.21 (61.8% retracement of the 101.67 to 121.41 advance). Initial resistance is now at 112.20 (May 8 high) followed by 114.18 (May 4 reaction high).

• Pound – 1.8560

Initial support at 1.8513 (May 9 corrective low) followed by 1.8335 (May 4 corrective low). Initial resistance is now at 1.8736 (May 10 high) followed by 1.8913 (May 11, 2005 corrective high).

• Aussie – 0.7710

Initial support at 0.7633 (May 9 corrective low) followed by 0.7551 (May 2 low). Initial resistance is now at 0.7771 (May 10 high) followed by 0.7811 (Jun 21, 2005 high).