Australian FOREX Daily Outlook 17/04/2008

U.S dives as inflation less than expected. Euro threatens key 1.60 level.

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

·U.S. Dollar Trading (USD) paired its gains made on Tuesday as CPI rose less than expected to 0.3%, causing the dollar to drop against the majors. This coupled with upward inflationary pressures in the Euro Zone and an increased sell off against commodity currencies hurt the dollar, seeing it fall to a record low against the Euro. The USD sell off came despite a rise in U.S yields and U.S stocks gaining over 2%. CPI for the month of March came in slightly below forecast at 0.3% m/m, compared to 0% for February. Industrial Output grew from -0.7% in February, to 0.3% in March, surpassing predictions of a -0.1% contraction. Housing Starts for March were slightly below forecasts of 1.02 million, coming in at 947k. Similarly, Building Permits shrunk from 984k in February to 927k in March. The Fed’s Beige Book covering up to April 7 had a negative outlook on the U.S economy, with nine out of twelve district reporting slower growth. In share market news, JP Morgan reported stronger than expected quarterly earnings despite the recent financial market turmoil. The NASDAQ lifted 64 point (2.8%), whilst the Dow Jones grew 256 points (2.1%). Oil prices yet reached fresh record highs, rising US$1.14 a barrel to US$114.93. Looking ahead, jobless claims is to be released on Thursday with expectations of an increase from 357k to 375k.

·The Euro (EURO) surged to new heights on Wednesday, even threatening to break the psychological barrier of 1.60 as Euro Zone CPI was revised up to 3.6% in March. Furthermore, core inflation rates rose to 2% for the first time in almost 5 years, justifying ECB President Trichet’s hawkish outlook. The Euro hit all-time highs against the pound also, bolstering speculation the UK currency’s yield advantage over the single currency will diminish. The EURUSD traded at a high of 1.5980 and a low of 1.5762, before closing at 1.5951 in New York.

·The Japanese Yen (JPY) strengthened through the Asian session, breaking through 101, before weakening slightly in New York to 101.73.BoJ President Shirakawa spoke on the yen on Wednesday testifying that the economy is unlikely to face a severe downturn and will return to its trend growth rate. The USDJPY traded at a high of 101.92 and a low of 100.83, before closing at 101.73 in New York.

·The Sterling (GBP) fell to record lows against the Euro as increased inflation pressures in the Euro weakened the sterling’s strength. The Sterling paired back its losses to the U.S on Tuesday as the U.S sell off pushed the pound temporarily above 1.98. The GBPUSD traded at a high of 1.9805 and a low of 1.9603, before closing at 1.9706.

·The Australian Dollar (AUD) strengthened on Wednesday following on from a downgrade in the US inflation rate coupled with a stronger risk appetite for commodity currencies. Furthermore, speculation is growing around Chinese entities as wanting a $22 billion stake in BHP, further increasing the demand for the Aussie dollar. The AUDUSD traded at a low of 0.9250 and a high of 0.9400, before closing at 0.9350 in New York.

·Gold (XAU) prices rose on Wednesday as a weaker dollar and inflation hedging drove it to a two week high. Gold gained US$16.30 (1.7%) to US$948.30.

TECHNICAL COMMENTARY

·Euro – 1.5935

Initial support at 1.5672 (Apr 14 low) followed by 1.5510 (Apr 3 Low). Initial resistance is now located at 1.5887 (Apr 14 high) followed by 1.5914 (April 10 trend).

·Yen – 101.95

Initial support is located at 100.03 (Apr 10 low) followed by 99.36 (50% retracement of the 95.76 to 102.95 advance). Initial resistance is now at 102.28 (Apr 11 high) followed by 102.84 (Apr 10 high).

·Pound – 1.9715

Initial support at 1.9601 (Apr 15 low) followed by 1.9585 (76.4 retracement of 1.9334-2.0398). Initial resistance is now at 1.9767 (Apr 15 high) followed by 1.9894 (Apr 14 high).

·Australian Dollar – 0.9375

Initial support a 0.9206 (Apr 14 high) followed by 0.9177 (Apr 7 low). Initial resistance is now at 0.9473 (Mar 13 high) followed by 0.9499 (Feb 28 trend high).

·Gold – 943.00

Initial support at 914.50 (Apr 14 low) followed by 903.40 (Apr 9 low). Initial resistance is now at 954.98 (Mar 26 high) followed by 997.08 (Mar 19 high).