Australian FOREX Daily Outlook 06/02/2008

RBA hike rates, as US services industry declines at it fastest rates in 7 years.

CURRENCY TRADING SUMMARY – 06 JANUARY 2008 (00:30GMT)

·U.S. Dollar Trading (USD) was volatile largely on the back of a significant contraction in ISM services figures for the month of January, coming in at 41.9 lower than the forecasted 53, the lowest reading since Oct 2001, intensifying concerns of a recession in the US, pressuring the Fed to cut rates further. It must be noted that the services sector contributes 70 to 80 % of the U.S. economy. In U.S. share markets the NASDAQ was down 73.28 points (-3.08%), whilst the Dow Jones was also down by 370.03 points (-2.93%) Crude oil also fell on Tuesday by US$0.26 a barrel to US$88.15.

·The Euro (EUR) was subject to poor data in the form of PMI services, which was released at 50.6, lowest showing since July 2003, prompting many traders to expect European Central Bank will be forced to trim its 2008 GDP growth forecast as early as March and eventually ease monetary policy this year. Overall the EURUSD traded with a low of 1.4620 and a high of 1.4834 before closing the day at 1.4648 in the New York session.

·The Japanese Yen (JPY) rallied against a number of majors as concerns surrounding the US economic slow down. As Asian stock prices closed lower, a flow on effect was seen on major European and US equity markets, ensuring the Yen was relieved of much of its role as a low funding currency. Overall the USDJPY traded with a low of 106.60 and a high of 107.74 before closing the day at 106.73 in the New York session.

·The Sterling (GBP) also weakened on a sharp sell of against the JPY, and growing expectations that the BoE will cut rates by 25 basis points on Thursday. In other data news, the UK PMI were slightly higher than expectations, in at 52.5 (Forecast: 52.4). Overall the GBPUSD traded with a low of 1.9605 and a high of 1.9764 before closing the day 1.9637 in the New York session.

·The Australian Dollar (AUD) although expected, saw an extremely courageous move by the RBA, hiking interest rates by 25bps to 7%, the highest level in 11 years, as concerns of inflation remain prominent, despite views of monetary easing surrounding several central banks. RBA Governor Stevens noted the global economy is slowing but added domestic economic growth may be commodity-driven. Inflation remains above the RBA’s target zone of 2% to 3%. Any further upside moves were limited by a broadly stronger USD, and falling equity markets. Overall the AUDUSD traded with a low of 0.8939 and high of 0.9090 before closing the day 0.8963 in the New York session.

·Gold (XAU) fell to the lowest in more than a week after the dollar rose against a number of majors, eroding the appeal of the precious metal as an alternative investment. XAU traded with a low of 886.10 and a high of 906.25

TECHNICAL COMMENTARY

·Euro – 1.4640

Initial support at 1.4661 (Jan 25 low) followed by 1.4592 (Jan 24 low). Initial resistance is now located at 1.4799 (Jan 28 high) followed by 1.4859 (Jan 16 high).

·Yen – 106.55

Initial support is located at 106.01 (Jan 28 low) followed by 104.97 (Jan 23 low). Initial resistance is now at 107.89 (Jan 25 high) followed by 107.95 (Jan 16 high)

·Pound – 1.9655

Initial support at 1.9814 (Jan 29 low) followed by 1.9731 (Jan 28 low). Initial resistance is now at 1.9929 (Jan 29 high) followed by 2.0034 (38.2% retracement of 2.1161 to 1.9338 decline)

·Australian Dollar – 0.8965

Initial support a 0.8768 (Jan 28 low) followed by 0.8691 (Jan 24 low). Initial resistance is now at 0.8907 (Jan 29 high) followed by 0.9022 (Jan 15 reaction high)

·Gold – 888.80

Initial support at 908.10 (Jan 23 low) followed by 876.80 (Jan 23 high). Initial resistance is now at 933.30 (Jan 29 high) followed by 950.0 (Psychological round number)