Australian FOREX Weekly Outlook 30/05/2006

30/05/06

last week’s recap

The Dollar gained against major currencies in a volatile week for the currency markets. The Dollar benefited as investors exited the stock and commodities markets preferring to buy into US treasuries. Comments by Federal Reserve chairman Bernanke saying that interest rates may be increased after the FOMC meeting in late June also assisted the dollar. The Euro lost ground against the dollar despite comments by ECB board member Liebscher who continued to sound quite hawkish, noting concerns about the risks of increased inflation. The Japanese yen also lost ground against the dollar as the minutes of the BoJ meeting in April were released showing the general consensus that interest rates should remain where they are at present. The Sterling was one of the worst performers against the dollar as it failed to break 1.9000. The Aussie lost ground against the dollar due mainly to falling commodity prices.

The Euro closed last week at 1.2725 having started the week at 1.2760. The GBP closed last week at 1.8563 having started the week at 1.8765. US$/JPY closed last week at 112.48 having started the week at 111.74. The A$ closed last week at 0.7590 having started the week at 0.7623.

The week ahead

The coming week will be a heavy on the data front and will cover all the major economies.The market perception is that central banks are on heightened data alert and therefore this downpour of data will be closely monitored by the markets.

In the States as usual, the data release with the most market-moving potential is the non-farm payrolls (Friday).The cooling housing market and the slower pace of growth of retail sales are expected to have affected employment growth. The national manufacturing ISM (Thursday) has been trending sideways for much of the past year. The Chicago PMI (Wednesday) will be monitored as a lead indicator of the national economy. There is an expectation by analysts for a significant decline in the Conference Board’s more comprehensive measure of overall consumer confidence in May (Tuesday). The markets will also pay close attention to the minutes of the FOMC meeting of May 10 (Wednesday), given the impact from the previous March 28 minutes. We will provide our previews of these data releases in the daily summary.

In the Eurozone the market is anticipating a weaker reading for Eurozone PMI (Thursday). The same is expected for the EC survey on overall economic and industrial confidence (Wednesday). Levels of unemployment in Germany and France (both Wednesday) are forecast to have dropped in May. From the perspective of the ECB and market policy watchers, there will be particular interest in the money supply (Tuesday) and the initial estimate of Eurozone inflation in May (Wednesday). In the UK much of the focus of the debate about the pace of growth of the economy continues to concern the housing market.The market expects a drop in mortgage approvals in April (Wednesday). The manufacturing PMI looks vulnerable for a setback in May (Thursday). The CBI Distributive Trades Survey (Wednesday) improved sharply in April. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro 1.2745

Initial support at 1.2730 (May 24 low) followed by 1.2685 (May 11 low). Initial resistance is now located at 1.2894 (May 24 high) followed by 1.292 (May 17 corrective high).

• Yen 112.65

Initial support is located at 111.47 (May 26 low) followed by 110.96 (May 23 corrective low 61.8% retracement of the 108.93 to 113.03). Initial resistance is now at 112.97 (May 24 high) followed by 114.18 (May 4 high &amp 50% ret 119.41 to 108.98).

• Pound – 1.8585

Initial support at 1.8530 (May 26 low) followed by 1.8348 (38.2% retracement of the 1.7250 to 1.9027 rally). Initial resistance is now at 1.8776 (May 26 high) followed by 1.8889 (May 22 high).

• Aussie – 0.7585

Initial support at 0.7491 (May 24 low) followed by 0.7466 (May 22 low). Initial resistance is now at 0.7622 (May 26 high) followed by 0.7676 (May 18 high).