Australian FOREX Daily Outlook 17/05/2006

MARKET SUMMARY –17MAY06 (05:00GMT)

• The Dollar fell against most of the other major currencies yesterday after data released for housing starts and producer prices came in below forecasts, suggesting that the Federal Reserve may be close to pausing its rate-hiking cycle. On the data front, housing starts eased back in April falling to 1,849k from 1,996k (vs. expectation of 1,950k). The headline PPI rose 0.9% in April, versus the expectation of a 0.8% rise. The annual rate increased to 4.0% from 3.5%. Meanwhile, core PPI inflation was more subdued than expected. Going against the weakness in other data, industrial production rose strongly by 0.8% in April, more than the 0.5% rise that had been expected. Also, capacity utilization increased to 81.9 from 81.4. In other markets, US stocks were lower on Tuesday with the Dow Jones index falling by just over 8pts with the NASDAQ lower by 9pts. Crude oil ended higher after two days of declines rising US12c to US$69.53. Looking ahead, CPI for April is due out today with the market expecting core CPI to rise by 0.2%.
  

• The Euro traded in a range of 1.2770 to 1.2868, before closing at 1.2858 in the New York session. On the data front, the ECB have begun to send mixed signals about the strength of the EUR. The EUR was not helped by a much weaker than expected ZEW in Germany falling from 62.7 to 50.0.

• The Japanese yen traded in a range of 109.67 to 110.61 versus the dollar, before closing at 109.75 in the New York session. On the data front, yesterday in Asia the April consumer confidence improved slightly sitting right on the 50 level.
  
• The Sterling traded in a range of 1.8746 to 1.8897, before closing at 1.8882 in the New York session. On the data front, the UK headline CPI rose 0.6% in April, lifting annual inflation to 2.0% from 1.8%. Headline inflation continues to be fuelled by high oil prices while core inflation remains subdued. The unemployment rate figures are due out today with the UK retail sales numbers due out tomorrow.
  

• The Aussie traded in a range of 0.7603 to 0.7693, before closing at 0.7670 in the New York session. On the data front, the Wage Price Index is due out later today.
  

• Gold managed to regain some lost ground, up US$10 to US$690.

Initial support at 0.7594 (May 15 low) followed by 0.7551 (May 2 corrective low). Initial resistance is now at 0.7749 (May 15 high) followed by 0.7795 (May 11 reaction high).