Australian FOREX Daily Outlook 20/05/2010

Euro Short Covering Rally

CURRENCY TRADING SUMMARY – 20th May (00:30GMT)

U.S. Dollar Trading (USD) in a unique day of trading the Euro rallied aggressively across the market even as Risk was taken off the board. Rumors swept through the market that the ECB would make an announcement on the currency’s depreciation and although this was denied the market held on to the gains. April’s CPI fell -0.1% m/m and the Core rate at 0.9% y/y is at multi decades lows.In US stocks, DJIA -66 points closing at 10444, S&amp P -5 points closing at 1115 and NASDAQ -18 points closing at 2298. Looking ahead, Weekly Jobless Claims are forecast at 440k vs. 444k previously.

The Euro (EUR) Started Europe under pressure and tested day lows after Germany’s Merkal stated the Euro was in Danger but then enjoyed a stunning reversal to close above 1.2400 in the US session. The gains were aggressive especially against the risk currencies AUD and NZD. EUR/USD traded with a low of 1.2143 and a high of 1.2433 before closing at 1.2410. Looking ahead, April German PPI is forecast at 0.5% vs. 0.7% previously m/m.

The Japanese Yen (JPY) was extremely volatile gaining over 300 sen against the AUD and GBP before reversing aggressively on ECB intervention mutter and profit taking. USD/JPY bounced off Y91 but the uptrend is now fiercely in debate. Overall the USDJPY traded with a low of 90.93 and a high of 92.18 before closing the day around 91.60 in the New York session. UPDATE Q1 GDP at 1.2% vs. 0.9% previously.

The Sterling (GBP) tracked the Euro higher in Europe and was able to pair losses against the Yen but sentiment is still fragile. EUR/GBP rallied as the Euro outpaced but the downtrend is still not threatened and 0.8600 is capping for now. Overall the GBP/USD traded with a low of 1.4236 and a high of 1.4469 before closing the day at 1.4400 in the New York session. Looking ahead, April Retail Sales forecast at 0.2% vs. 0.4%.

The Australian Dollar (AUD) capitulated as the year low at 0.8580 broke in the Asian session and hedge funds and large investors liquidated. AUD/JPY led the way lower falling from Y79 to Y76.50 rapidly before volatile action for the rest of the day. Adding to the weak sentiment was the drop in Consumer Confidence to -7 vs. -1 previously m/m. Overall the AUD/USD traded with a low of 0.8356 and a high of 0.8616 before closing the US session at 0.8480.

Oil &amp Gold (XAU) profit taking hit the precious metal hard with the pair breaking through the $1200 and sliding below $1190 before stabilizing. Overall trading with a low of USD$1186 and high of USD$1228 before ending the New York session at USD$1195 an ounce. Oil rallied back above $70 a barrel. WTI Oil Closed $0.80 at $70.40 a barrel.

TECHNICAL COMMENTARY

Euro – 1.2335

Initial support at 1.2102 (April 2006 low) followed by 1.2000 (Round Number Support). Initial resistance is now located at 1.2597 (May 14 high) followed by 1.2747 (May 12 high)

Yen – 91.65

Initial support is located at 91.52 (0.382 of 88.26-93.54) followed by 90.28 (0.618 of 88.26-93.54). Initial resistance is now at 94.19 (May 6 low) followed by 94.99 (May 5 high).

Pound – 1.4390

Initial support at 1.4111 (March 30 2009 low) followed by 1.3845 (March 18 2009 low). Initial resistance is now at 1.4517 (May 18 High) followed by 1.4918 (May 13 low).

Australian Dollar – 0.8420

Initial support at 0.8358 (May 19 low) followed by the 0.8241 (Sep 2 2009 low). Initial resistance is now at 0.8626 (May 18 low) followed by 0.8865 (May 17 high).

Gold – 1195

Initial support at 1186 (May 19 low) followed by 1171 (May 6 low). Initial resistance is now at 1250 (Key level) followed by 1261 (1123.90 plus 1.618 of 1085.3-1170.1).

Oil – 72.70

Initial support at 72.50 (Intraday Support) followed by 70.00 (Intraday Support). Initial resistance is now at 75.00 (March high) followed by 76.00 (Intraday Resistance).