Australian FOREX Daily Outlook 03/07/2007

ISM Manufacturing reaches 14 month high as markets more concerned with housing sector. AUD and GBP reach fresh multi year highs.

CURRENCY TRADING SUMMARY –03 JULY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) saw markets disregard a buoyant reading in June’s ISM Manufacturing (Actual: 56 Forecast: 54.8) be disregarded by markets as the USD tumbled against a basket of majors. Investors remained worried about the U.S. housing sector reinforcing views that the Fed Reserve funds rate will remain unchanged for some time while borrowing costs abroad continue to rise. In U.S. share markets the NASDAQ rose by 29.07% (+1.12%) whilst the Dow Jones also rose by 126.81 (+0.95%). Crude oil tested fresh 10 month highs rising by a further US$0.41 a barrel to US$71.09. Looking ahead, with plenty of interest surrounding the housing sector, Pending Home Sales on Tuesday will generate interest with markets forecasting a figure of 0.6% rise from the previous -3.2%.

• The Euro (EUR) rallied as manufacturing PMI rose to a four-month high of 55.6 in June slightly higher than the flash estimate, backing expectations of further Euro zone rate increases in the coming months. Overall, the EURUSD traded with a low 1.3529 and a high of 1.3639 and a high 1.3622 in the New York session. Looking ahead, Key data out of the EZ will be released in the form of the PPI with forecasts of 2.4% for the month of May. In other data news, the Unemployment Rate is expected at 7.1%, unchanged from the previous figure.

• The Japanese Yen (JPY) strengthened against the board as investors with expectations the investors will look to unwind risky bets. In data news, the Tankan Report was inline with expectations, supporting the view that the BOJ will raise interest rates very gradually, leaving the yen as a very attractive currency to borrow to fund higher-yielding investments. Overall the JPY traded with a range of a low 122.09 and a high of 123.28 before closing the day at 122.33 on the New York session.

• The Sterling (GBP) hit a 26-year high versus the dollar at $2.0174 ahead of the Bank of England’s policy meeting on Thursday. The central bank is expected to raise rates by a quarter percentage point to 5.75 %, half a percentage point higher than U.S. borrowing costs. Overall the GBPUSD traded with a range of a low of 2.0072 and a high of 2.0174 before closing the day at 2.0172 in the New York session. Looking ahead, Consumer confidence will be made public for the month of June, with the previous figure being released at 99.

• The Australian Dollar (AUD) once again remained bullish breaking through further key levels, on the back of a broadly weaker USD. The AUD touched a fresh 18 year high against the dollar ahead of RBA announcement this week. Overall the AUD traded with a range of a low 0.8498 and a high of 0.8598 before closing the day at 0.8593 in the New York session. Looking ahead, May Retail Sales will be made public with expectations the figure will be released at 0.7% (Prior: 0.1%). UPDATE: Aussie Retail Sales at -0.1%

• The South African Rand (ZAR) gained over one percent against the dollar on Monday to touch six-week highs as worries about the U.S. housing sector reinforced views that U.S. interest rates would likely stay steady but rise elsewhere. The dollar fell to a seven-week low against the Euro which the rand normally tracks given South Africa‘s trading ties with the Euro zone

• Gold (XAU) rose by US$8.30 an ounce to US$659.20 buoyed by a weaker dollar.

TECHNICAL COMMENTARY

• Euro 1.3620

Initial support at 1.3527 (June 2 low) followed by 1.3414 (Jun 27 low). Initial resistance is now located at 1.3641 (Jul 2 high) followed by 1.3683 (Apr 27 trend high)

• Yen 122.40

Initial support is located at 122.06 (0.618 of 120.76 -124 advance) followed by 121.49 (Jun 13 low). Initial resistance is now at 123.56 (Jun 29 reaction high) followed by 124.17 (Jun 22 trend high)

• Pound – 2.0165

Initial support at 1.9974 (June 28 low) followed by 1.9929 (Jun 27 low). Initial resistance is now at 2.0200 (Round Number resistance) followed by 2.0220 (Mar 1979 high)

• Australian Dollar – 0.8580

Initial support a 0.8460 (June 29 low) followed by 0.8354 (Jun 87 low). Initial resistance is now at 0.8602 (Jul 2 trend high) followed by 0.8700 (Round Number)

• Gold – 656.80

Initial support at 640.00 (June 26 low) followed by 637.36 (Mar 14 low). Initial resistance is now at 659.00 (July 2 high) followed by 662.35 (61.8% retracement 674.00 to 643.50 decline)