Australian FOREX Daily Outlook 18/07/2007

USD gains support on PPI, TIC Flows and Industrial Production. UK Core CPI adds to sterling strength ahead of BoE minutes.

CURRENCY TRADING SUMMARY –18 JULY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) was mixed across the board, rallying against a fair few currencies with reports suggesting the Federal Reserve may not look to ease rates in 2007. The Dollar was largely supported by a buoyant figure in TIC flows for the month of May rose to 126.10 bln, whilst Core PPI was also slightly higher than expectations. The Greenback gained further support from a reading in Industrial Production which indicated a rise of 0.5% for the month of June. In U.S. share markets the NASDAQ was up 14.96 (+0.55%) points whilst the Dow Jones was also up 20.57 points (+0.15%). Crude Oil eased slightly on Tuesday, falling by US$0.14 a barrel to US$74.02. Ahead for the US markets. Wednesday proves to have further volatility surrounding it as Core CPI for the month of June is expected to indicate a figure of 0.2% slightly up from the previous 0.1%. With so much emphasis on the housing sector in the U.S., plenty of focus will also be paid to housing starts and building permits. Federal Reserve Chairman’s much anticipated address to House regarding the state of the US economy and the monetary policy is also scheduled for Wednesday.

• The Euro (EUR) was range bound for much of the session against the Dollar despite sturdy data from the US. The Euro performed well against the JPY on Tuesday as the EURJPY cross was up 0.5% for the session to test a high of 168.65. In data specific news the German ZEW survey was released worse than expectations at 10.4. Overall the EURUSD traded with a range of a low 1.3757 and a high of 1.3799 before closing the day at 1.3781 in the New York session. Looking ahead the EZ trade balance will be made public for the month of May, with expectations that an appreciated currency will do little to narrow the trade surplus as forecasts lie at 2.1 bln (Previous: 1.8 bln).

• The Japanese Yen (JPY) eased against the USD following buoyant data out of the US. Overall the USDJPY traded with a range of low 121.69 and a high of 122.41 before closing the day at 122.31 in the New York session. Looking ahead the BoJ minutes for the June meeting will be made public today.

• The Sterling (GBP) hit a new 26-year high against the dollar on Tuesday after stronger-than expected UK inflation data boosted expectations that interest rates (already the highest in the Group of Seven nations at 5.75%) will climb beyond the 6 percent priced in by the end of the year. Markets are now pricing a 70% chance that the BoE hiking to 6.25% will materialize. Overall the GBPUSD traded with a range of a low 2.0352 and a high of 2.0475 before closing the day at 2.0461 in the New York session. Ahead, UK unemployment Rate for the month of May is expected to come in flat at 5.5%.

• The Australian Dollar (AUD) eased from it’s previous session highs as absent data ensured that the AUDUSD was largely range bound for much of the session. Overall the AUDUSD traded with a range of a low 0.8710 and a high of 0.8751 before closing the day at 0.8724 in the New York session. Looking ahead, RBA Gov Stevens will be talking today, although it is expected much of the discussion will surround the 10 year anniversary of the 1997 Asian Crisis.

• The Canadian Dollar (CAD) softened slightly versus the greenback on Tuesday, as oil prices slipped, yet stayed within of sight of record highs. Canadian bond prices fell along with U.S. Treasuries, with no major domestic data released. Overall the USDCAD traded with a range of a low 1.0422 and a high of 1.0452 before closing the day at 1.0434 in the New York session. Markets are now focusing on Wednesday’s Canadian inflation numbers for June.

• Gold (XAU) was relatively unchanged rising slightly by US$0.40 an ounce to US$665.90

CURRENCY PAIR IN FOCUS

• CAD/JPY rose together with GBPJPY and EURJPY as the JPY weakness intensified with a surge in carry trades.

TECHNICAL COMMENTARY

• Euro 1.3810

Initial support at 1.3730 (July 11 low) followed by 1.3592 (Jul 10 low). Initial resistance is now located at 1.3826 (Jul 18 trend high) followed by 1.3852 (Open + (Last weeks range * 1.618).

• Yen 121.95

Initial support is located at 120.76 (Jun 8 reaction low) followed by 120.15 (May 16 low). Initial resistance is now at 122.62 (Jul 13 high) followed by 123.68 (Jul 7 high)

• Pound – 2.0485

Initial support at 2.0347 (Jul 17 low) followed by 2.0243 (Jul 10 low). Initial resistance is now at 2.0504 (This week opens + (last week range*0.618) followed by 2.0575 (June 1981 high)

• Australian Dollar – 0.8750

Initial support a 0.8653 (Jul 13 low) followed by 0.8565 (Jul 10 low). Initial resistance is now at 0.8827 (2.618 of 0.8333 -0.8514 from 0.8354) followed by 0.8919 (1.00 progression of 0.8163 – 0.8749 from 0.8333)

• Gold – 665.70

Initial support at 658.90 (Jul 10 low) followed by 653.80 (Jul 9 low). Initial resistance is now at 669.40 (Jul 12 high) followed by 674.19 (Jun 4 low)