Australian FOREX Daily Outlook 29/08/2007

Soft U.S. housing data cause markets to dive. FOMC hints at policy loosening.

CURRENCY TRADING SUMMARY –29 AUGUST 2007 (00:30GMT)

• U.S. Dollar Trading (USD) the USD rallied on Tuesday, following weak data out of the US, in which market reacted by taking a risk aversion approach. High yielding currencies were paired off against the USD on the back of further carry trade unwinding. Much of the moves was were triggered by reports showing that inventory of unsold pre-owned U.S. homes reached a near 16-year high in July, adding to concerns about a sluggish housing market and sapping investor risk appetite. That being said, further down side moves were seen on reports of the FOMC minutes (Aug 7) meeting acknowledged that a policy loosening may be needed in order to prevent market conditions worsening. Asian and European markets tracked U.S. share markets, where the NASDAQ was down 60.61 points (-2.37%) whilst the Dow Jones plummeted 280.28 points (-2.10%). Crude oil fell by US$0.24 a barrel to US$71.73 on the back of a broadly stronger dollar.

• The Euro (EUR) lost further ground on the USD as ECB President Trichet mentioning on Monday that the jitters in financial markets will be considered during next weeks policy meeting, in which expectations of a rate hike are rapidly fading. Overall the EURUSD traded with a range of a low 1.3619 and a high of 1.3680 before closing the day at 1.3626 in the New York session.

• The Japanese Yen (JPY) rose sharply across the board in a minimal risk market, with investors wary that tough lending conditions could drag on global economic growth. Overall the USDJPY traded with a range of a high of 115.76 before closing the day at lows of 114.62 in the New York session.

• The Sterling (GBP) was paired off in volatile session, following soft US housing data and a drop in equity prices kept investors away from further rebuilding carry trades. Overall the GBPUSD traded with a range of a low 2.0028 and a high of 2.0141 before closing the day at 2.0073 in the New York session.

• The Australian Dollar (AUD) also suffered as high yielding currency in which the AUD fell on the back of other majors. Overall the AUDUSD traded with a range of a low 0.8204 and a high of 0.8277 before closing the day at 0.8204

• Gold (XAU) fell on the back of a drop in equities falling by US$2.70 an ounce to US$673.50.

CURRENCY PAIR IN FOCUS

• EURJPY naturally tumbled in a risk aversion market breaking key support levels as investors continued to unwind the popular carry trade. Drop in equity prices and dwindling expectations of an ECB rate hike next month saw the EURJPY fall from high of 158.15 to close at day lows of 156.16, falling almost 200 points, by the end of the New York session.

TECHNICAL COMMENTARY

• Euro 1.3570

Initial support at 1.3534 (Aug 23 low) followed by 1.3449 (Aug 22 low). Initial resistance is now located at 1.3685 (Aug 27 high) followed by 1.3711 (Aug 13 high).

• Yen 114.10

Initial support is located at 113.67 (Aug 20 low (113.72 is the 61.8% retracement) followed by 112.91 (76.4% retracement of the 111.60 to 117.15 advance). Initial resistance is now at 115.88 (Aug 28 high) followed by 116.75 (Aug 27 high).

• Pound – 1.9985

Initial support at 1.9978 (Aug 24 low) followed by 1.9915 (Aug 23 low). Initial resistance is now at 2.0143 (Aug 28 high) followed by 2.0195 (Aug 27 high)

• Australian Dollar – 0.8075

Initial support a 0.8064 (Aug 23 low) followed by 0.7955 (Aug 21 low). Initial resistance is now at 0.8350 (Aug 15 high) followed by 0.8431 (76.4% retracement of the 0.8665 to 0.7674 decline)

• Gold – 662.05

Initial support at 657.70 (Aug 24 low) followed by 653.70 (Aug 20 low). Initial resistance is now at 668.80 (Aug 24 high) followed by 676.80 (Aug 8 high)