Australian FOREX Daily Outlook 17/03/2008

Bear Sterns acquires injection from Fed and JP Morgan. Fed cuts discount rate to 3.25%

CURRENCY TRADING SUMMARY – 17 MARCH 2008 (00:30GMT)

·U.S. Dollar Trading (USD) traded at record lows once again as the credit market stress continued to rear its ugly head. In data related news the Core CPI figures eased from eased from 2.5% to 2.3% (y/y) for the month of February, highlighting the U.S. slowdown. In other news, Bear Stearns received emergency funding by the Federal Reserve and JP Morgan on Friday. In U.S. share markets the NASDAQ was down by 51.12 points (-2.26%) whilst the Dow Jones was also lower by -194.65 points (-1.6%) weighing heavy on a number of high yielding currencies. Crude oil also traded lower by US$0.15 a barrel to end at US$110.15. Looking ahead, the FOMC start their two day meeting today, whilst other key data released on Monday will include the Current Account figures for the fourth quarter (Forecast: -184 bln Previous: -178.4 bln) and the New York Fed Manufacturing Survey (Forecast: -8 bln Previous: -11.72 bln). UPDATE: Monday Asian session reveals JP Morgan to acquire Bear Stearns at $2 a share, whilst the Fed moves to cut the discount rate to 3.25% effective immediately.

·The Euro (EURO) touched a fresh record high on Friday on an ongoing weakening dollar. The Euro was buoyed by added to bets that the Federal Reserve will look to cut interest rates by 50 bps on Tuesday the 18^th of March. In other news, European Union leaders expressed concern over excessive currency volatility and undesirable disorderly movements of exchange rates. Despite the recent comments from the ECB, the EUR continues to build on last years gains against the US dollar. Overall the EURUSD traded with a low of 1.5532 and a high of 1.5690 before closing the day at 1.5664 in the New York session.

·The Japanese Yen (JPY) traded at a fresh 12 ½ year low versus the dollar following poor US economic data. The Japanese yen also benefited from a fleeing of carry trades and falling stock prices in light of the Bear Stearns debacle. Overall the USDJPY traded with a low of 98.89 and a high of 101.15 before closing the day at 99.24 in the New York session.

·The Sterling (GBP) rallied versus the weakening US dollar, taking advantage of the growing sense in financial markets that the Federal Reserve’s recent actions to ease credit market strains will not work. The Sterling pound also gained on trimmed bets the BoE will move to cut rates in the near term future. Overall the GBPUSD traded with a low of 2.0210 and a high of 2.0387 before closing the day at 2.0206 in the New York session.

·The Australian Dollar (AUD) initially rallied, although paired it gains on news of Bear Stearns liquidity concerns and falling stock prices. As a result, the high yielding currency fell on market jitters trading with a low of 0.9362 and a high of 0.9447, before closing the day at 0.9376 in the New York session.

·Gold (XAU) surged to a record in New York following news of the Bear Stearns bailout and a plunging dollar increased demand for the precious metal. XAU traded higher by US$5.70 an ounce to close at US$999.50, having earlier traded at a record high of US$1,009.

TECHNICAL COMMENTARY

·Euro – 1.5705

Initial support at 1.5523 (Mar 13 low) followed by 1.5331 (Mar 12 low). Initial resistance is now located at 1.5790 (open this week + range last week * 1.382) followed by 1.5862 (open this week + range last week * 1.618).

·Yen – 98.70

Initial support is located at 97.25 (September 1995 low) followed by 101.26 (Nov 1999 low). Initial resistance is now at 98.92 (108.60 – 114.66 – 104.98) followed by 101.69 (Mar 13 high)

·Pound – 2.0165

Initial support at 1.9996 (Mar 11 high) followed by 1.9975 (Feb 27 resistance). Initial resistance is now at 2.0398 (Mar 14 high) followed by 2.0465 (61.8% ret of 2.1161 -1.9338)

·Australian Dollar – 0.9410

Initial support a 0.9315 (Mar 13 low) followed by 0.9276 (Mar 12 low). Initial resistance is now at 0.9473 (Mar 13 high) followed by 0.9499 (Feb 28 high)

·Gold – 1004.50

Initial support at 990.80 (Mar 14 low) followed by 981.80 (Mar 13 low). Initial resistance is now at 1010.00 (Round Number resistance) followed by 1020.52 (open + last weeks range * 1.382)