Australian FOREX Daily Outlook 01/11/2007

Federal Reserve cuts rates by 25 basis points, buying time for further movements.

CURRENCY TRADING SUMMARY –01 NOVEMBER 2007 (00:30GMT)

·U.S. Dollar Trading (USD) tumbled against a number of majors as the Federal Reserve moved to cut interest rates by a further 25 basis points to 4.5%, as speculation mounted following Central Bank’s second rate cut in 6 weeks, that global growth will weather a U.S. slowdown. Speculators fled the dollar as the Fed also chose to lower the discount rate (loans between banks) by another quarter of a per cent to 5% in an attempt to induce liquidity. Although the vote was not unanimous, with a 9 to 1 decision, the accompanying statements were neutral as the committee stated “the upside risks to inflation roughly balance the downside risks to growth”. The FOMC did acknowledge that GDP (Q3) growth had been stable, easing strains on financial markets, yet concerns remained that recent housing slumps could continue to weigh on economic expansion. In U.S. share markets the NASDAQ was up 42.41 points (+1.41%) whilst the Dow Jones also gained by 137.54 (+1.00%). Crude oil surged to another record high on Wednesday following a battered USD, up by US$4.15 a barrel to US$94.53, having traded above US$94.53.

·The Euro (EUR) rallied to record high on Wednesday following the decision by the Federal Reserve to cut rates. Overall the EURUSD traded with a low of 1.4420 and a high of 1.4504 before closing the day at 1.4438 in the New York session.

·The Japanese Yen (JPY) was range bound for much of the session as the BoJ held rates on Wednesday. Overall the USDJPY traded with a low of 114.53 and a high of 115.18 before closing the day at 115.03 in the New York session.

·The Sterling (GBP) rose to fresh 26 year highs after the U.S. cut its benchmark borrowing rate by 25bp. U.K. policy maker David Blanchflower said the Bank of England is taking a “watch and see” approach. Overall the GBPUSD traded with a low of 2.0669 and a high of 2.0825 before closing at 2.0808 in the New York session.

·The Australian Dollar (AUD) surged through fresh 23 year highs above 0.9300 levels. With views that the RBA is expected to increase interest rates on November 7, the Fed rate cut only prompted traders to invest in the AUD as the gap between interest rates is expected to widen further. Overall the AUDUSD traded with a low of 0.9220 and a high of 0.9338 before closing the day at 0.9310 in the New York session. Thursday has seen Retail Sales out of Australia come in better than expectations fuelling further rate hikes.

·Gold (XAU) rose after a gain in energy costs sparked demand for the precious metal as a hedge against inflation. XAU traded with a low of 777.50 and a high of 794.50

TECHNICAL COMMENTARY

·Euro 1.4470

Initial support at 1.4316 (Oct 26 low) followed by 1.4248 (Oct 25 low). Initial resistance is now located at 1.4439 (Oct 29 trend high) followed by 1.4469 (This week’s open + last week’s range)

·Yen 115.54

Initial support is located at 113.78 (Oct 25 low) followed by 113.26 (Oct 22 low). Initial resistance is now at 115.04 (Oct 23 high) followed by 115.72 (Oct 18 high).

• Pound – 2.0795

Initial support at 2.0481 (Oct 26 low) followed by 2.0427 (Oct 24 low). Initial resistance is now at 2.0694 (Oct 30 high) followed by 2.0750 (This week’s open + last week’s range)

• Australian Dollar – 0.9315

Initial support a 0.9076 (Oct 26 low) followed by 0.9010 (Oct 25 low). Initial resistance is now at 0.9272 (Oct 29 trend high) followed by 0.9341 (This week’s open + (last week’s range * 1.618).

• Gold – 796.80

Initial support at 769.80 (Oct 26 low) followed by 762.00 (Oct 25 low). Initial resistance is now at 794.70 (Oct 29 trend high) followed by 800.00 (Round number resistance)