Australian FOREX Daily Outlook 03/08/2007

ECB and BoE keep rates on hold. USD weakens as majors strengthen across the board

CURRENCY TRADING SUMMARY –03 AUGUST 2007 (00:30GMT)

• U.S. Dollar Trading (USD) was generally weaker across the board except against the Yen, as appetite for beleaguered currencies sold off during the week returned ahead of non-farm payrolls. Jobless claims rose by 4k to 307k with forecasts predicting a rise to 310k. In the US share markets, strong corporate earnings helped ease fears of a spill-over effect from the sub-prime mortgage debacle. The Dow Jones index rose by 100pts (0.8%) while the NASDAQ climbed 23pts (0.9%). Crude oil prices rose after OPEC officials confirmed they would not increase supply at its September meeting. Crude oil gained US33c a barrel to US$76.86. Looking ahead, Non-farm payrolls are due with a consensus of 115k new jobs. Unemployment rate and Non-manufacturing ISM are both due to be released.

• The Euro (EUR) was stronger against the greenback after BundesBank President Axel Weber said fears of a German banking crisis were unfounded. The ECB left rates on hold as expected at 4% with ECB President Jean-Claude Trichet stating “strong vigilance” was needed to stem inflation risks. Markets quickly moved to price in a September rate hike. PPI for June came in at 0.1% compared to a 0.3% estimate. Overall, the EURUSD traded with a range of a low 1.3652 and a high of 1.3705 before closing the day at 1.3699 in the New York session. Looking ahead, Services PMI and retail sales are due out today.

• The Japanese Yen (JPY) was weaker against the USD as traders took advantage of a rebound in US stock markets to purchase the greenback against the Yen. Carry traders also seemed to have re-entered the market further adding pressure to the Yen. Overall, the USDJPY traded with a range of a low 118.33 and a high of 119.38 before closing the day at 119.22 in the New York session.

• The Sterling (GBP) was steady against the Greenback as the Bank of England kept rates on hold at 5.75% in line with market expectations. Markets are still betting on a move to 6.0% before then end of this year. Overall, the GBPUSD traded with a range of a low 2.0284 and a high of 2.0378 before closing the day at 2.0364 in the New York session. Looking ahead, Services PMI is due out today.

• The Australian Dollar (AUD) benefited from USD weakness climbing higher throughout the day. Overall, the AUDUSD traded with a low of 0.8493 and a high of 0.8604 before closing the day at 0.8584 in the New York session.

• Gold (XAU) rose modestly by US70c an ounce to US$676.60 with central bank sales capping any further upside moves.

CURRENCY PAIR IN FOCUS

• AUD/JPY The AUD gained 0.6% against the Yen as Traders resumed the carry trade for the time being. With equity markets less volatile of late, purchases of high yielding currencies such as the Aussie resumed when expressed against the JPY.

TECHNICAL COMMENTARY

• Euro 1.3705

Initial support at 1.3608 (July 30 low) followed by 1.3567 (Jul 6 low). Initial resistance is now located at 1.3730 (Jul 31 high) followed by 1.3771 (July 26 trend high).

• Yen 119.15

Initial support is located at 117.60 (Apr 19 low) followed by 117.28 (76.4% retracement of the 115.15 to 124.17 advance). Initial resistance is now at 119.39 (Aug 2 high) followed by 119.51 (Jul 31 high).

• Pound – 2.0360

Initial support at 2.0180 (Jul 30 low) followed by 2.0134 (July 30 low). Initial resistance is now at 2.0381 (Aug 2 high) followed by 2.0418 (50% of the 2.0656 to 2.0180 decline)

• Australian Dollar – 0.8575

Initial support a 0.8491 (Aug 2 low) followed by 0.8435 (61.8% retracement of the 0.8163 to 0.8875 advance). Initial resistance is now at 0.8605 (Aug 2 high) followed by 0.8616 (Jul 31 high)

• Gold – 666.00

Initial support at 657.16 (Jul 27 low) followed by 653.80 (Jul 9 low). Initial resistance is now at 676.77 (Jul 26 high) followed by 687.40 (Jul 24 high)