Australian FOREX Weekly Outlook 16/08/2006

16/08/06

last week’s currency trading review

The Dollar rallied strongly against the major currencies last week as the accompanying statement from the central bank hinted that the pause in monetary policy tightening could be temporary. The Euro closed last week at 1.2737 having started the week at 1.2886. The Euro traded higher for the majority of the week, briefly touching 1.2900, before profit taking caused a sharp reversal. The ECB raised the official refinancing rate by 0.25% to 3% as expected. Stronger than expected retail sales on Friday caused the dollar to strengthen further pushing the Euro to close on its lows. US$/JPY closed last week at 116.26 having started the week at 114.30. The yen however fell against the dollar after weaker-than-expected GDP data lent support for the BOJ delaying further rate hikes. The GBP closed last week at 1.8929 having started the week at 1.9085. The Sterling trade strongly against the dollar but a foiled terrorist attack originating in the UK had an adverse affect on the local currency. The A$ closed last week at 0.7677 having started the week at 0.7613. The Aussie held up well against the dollar following a stronger than expected unemployment report.

The forex trading week preview

The coming week has plenty of key data releases with the highlight being the US inflation report for July. Analysts still see core inflation remaining as a concern but expect manufacturing surveys and housing market data to reflect a slowing in the US economy.

In the States with the FOMC statement less hawkish than the market expected, the Fed did leave the door open for further hikes if required. Therefore, the US inflation report (Wednesday) will remain in the spotlight for the immediate future. Record warm weather in July is likely to have boosted US industrial production (Wednesday) as utility output soared. Analysts expect a modest rebound in the Philly Fed survey (Thursday) following a larger than expected decline in July. This week also brings further information on the ongoing slowdown in the US housing market activity and analysts expect another drop in housing starts (Wednesday). Analysts expect the US index of Leading Economic Indicators (Thursday) to hold steady in August. We will provide our previews of these data releases in the daily summary.

In the Eurozone it’s a rather quiet week on the data front with the only release of not being this week’s ‘flash’ GDP readings (Wednesday), but these are unlikely to provide much detail on contributions to growth. In the UK there are a number of key data releases for the UK including employment data (Wednesday) and retail sales. As highlighted by the Bank of England as part justification for their August rate hike, consumer spending growth has recovered in the first half of this year after trending lower throughout 2005. Analysts do expected a slip in July after four consecutive strong monthly gains. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro 1.2790

Initial support at 1.2695 (Aug 15 low) followed by 1.2685 (50% ret 1.2456 to 1.2913 and approx Aug 3 low). Initial resistance is now located at 1.283 (61.8% retracement of the 1.2913 to 1.2695 decline) followed by 1.2913 (Aug 10 corrective high).

• Yen 116.00

Initial support is located at 115.69 (38.2% retracement of the 113.97 to 116.76 advance) followed by 115.11 (Aug 11 low). Initial resistance is now at 116.74 (Aug 15 high) followed by 116.96 (76.4% retracement of 117.89 to 113.97 decline).

• Pound – 1.8940

Initial support at 1.8841 (Aug 14 low) followed by 1.8775 (38.2% retracement of the 1.8176 to 1.9146 rally). Initial resistance is now at 1.8961 (Aug 15 high) followed by 1.8992 (Aug 11 high).

• Australian Dollar – 0.7645

Initial support at 0.7565 (Aug 9 low) followed by 0.7546 (38.2% retracement of the 0.7269 to 0.7717 advance). Initial resistance is now at 0.7682 (Aug 14 high) followed by 0.7717 (Aug 10 high).

• Gold – 625

Initial support at 624 (Aug 14 low) followed by 602.57 (Jul 24 low). Initial resistance is now at 645 (Aug 11 high) followed by 656.2 (Aug 2 high).