Australian FOREX Daily Outlook 01/02/2007

CURRENCY TRADING SUMMARY –01 FEBRUARY 07 (23:30GMT)

• U.S. Dollar Trading (USD) in a heavy data-day the FOMC decided to keep interest rates unchanged (5.25%). As much as the market expected the decision, it was accompanying statements by Fed officials indicating that inflationary pressures are receding that caused most interest with the likelihood of future rate cuts increasing. As a result the USD fell against all other majors on Wednesday. The Chicago PMI also released on Wednesday came in weaker than expected at 48.8 rather than the forecasted 52 and the previous 51.6. Although the dollar had been bolstered earlier in the session by a strong forecast of U.S. economic growth in the last three months of 2006, the USD dipped following the Chicago PMI indicating Midwest business activity was at its lowest since April 2003. In related news, the GDP (Q4) came out stronger than expected at 3.5% with economists predicting 3% growth the previous quarter saw a rise of 2%. In other markets the NASDAQ was up 15.29 points (0.62%) and the Dow Jones was also up 98.38 points (0.79%) as investors were encouraged by the FOMC interest rate decision. Crude Oil rose by US$1.01 to US$57.98 a barrel. Looking ahead, release of key economic data out of the US continues to be the trend with ISM manufacturing for the month of January being made public. Market expectations are at 51.9 higher than the previous 51.4. Furthermore, Core PCE is scheduled for release out of the US where the previous saw a 2.2% rise.

• The Euro (EUR) climbed above the psychologically important level of 1.3000 on the back of weaker-than-expected reading on U.S. Midwest business activity, which spurred a bout a profit-taking ahead of the Federal Reserve policy meeting outcome. Yet reports are suggesting that the exchange rate of the Euro against the Yen is more of a concern then that of the Euro against the Dollar according to German Economy Minister Michael Glos. European officials have expressed concern recently that the Japanese currency’s weakness against the Euro gives exporters in Japan an unfair advantage over their Euro region rivals, in particular Germany’ key auto sector. Overall, the EURUSD traded within a low of 1.2927 and a high of 1.3020 before closing the day at 1.3029 in the New York session. Looking ahead, Manufacturing PMI is scheduled for release out of the Eurozone with markets expecting a figure of 56.3 down on the previous 56.5.

• The Japanese Yen (JPY) strengthened sharply yesterday following reports U.S. Treasury Secretary Henry Paulson said he is watching the value of the currency “very, very closely,” a week before a meeting of the G7 rich nations where yen weakness is expected to be discussed. Paulson added that the Yen’s current value reflected low interest rates and a still-sluggish Japanese economy. The comments saw investors loosen bets against further weakness of the Yen. Overall the Yen traded within a range of a low 120.62 and a high of 121.75 before closing at 120.71 in the New York session near day lows.

• The Sterling (GBP) experienced a volatile day of trading reaching lows of 1.9484 and a high of 1.9669 before closing at 1.9638 during the New York session. The fall below the $1.95 was driven down by profit-taking from recent multi-year highs, ahead of month end and stronger than expected U.S. growth data. With officials declaring the drop was consistent with view that the Sterling over-appreciated following the BoE rate hike in January.

• The Australian Dollar (AUD) rose against the USD, trading with a low of 0.7698 to high of 0.7767 before closing at 0.7758 in the New York session (near day highs).

• Gold (XAU) rose in response to a weaker US dollar by US$2.90 an ounce to US$653.10 an ounce.

TECHNICAL COMMENTARY

• Euro 1.3030

Initial support at 1.2925 (Jan 31 low) followed by 1.2876 (Jan 26 low). Initial resistance is now located at 1.3045 (Jan 23 high) followed by 1.3054 (Jan 9 high and 38.2% of 1.3368 to 1.2865)

• Yen 120.70

Initial support is located at 120.63 (Jan 31 low) followed by 120.19 (Jan 25 low). Initial resistance is now at 122.20 (Jan 29 trend high) followed by 122.38 (61.8% retracement of the 135.18 to 101.67 decline)

• Pound – 1.9645

Initial support at 1.9482 (Jan 31 corrective low) followed by 1.9417 (76.4% retracement of the 1.9262 to 1.997 advance). Initial resistance is now at 1.9637 (Jan 31high) followed by 1.9733 (50% retracement 1.9917 to 1.9549 &amp approx. Jan 25 high)

• Australian Dollar – 0.7755

Initial support at 0.7698 (50% retracement of the 0.7414 -0.7982 rally) followed by 0.7631 (61.8% retracement of the .7414 – 0.7982 rally). Initial resistance is now at 0.7790 (38.2% retracement of the 0.7940 to 0.7697 decline) followed by 0.7821 (Jan 25 high).

• Gold – 652.75

Initial support at 641.10 (Jan 26 low) followed by 639.25 (Jan 24 corrective low). Initial resistance is now at 654.60 (Jan 25 high) followed by 656.20 (Aug2, 2006 reaction high)