Australian FOREX Daily Outlook 10/01/2006

MARKET SUMMARY – 10/01/06(03.00GMT)

• The Dollar was mixed in overnight trade, paring back some of its losses against euro and yen but slipping further against commodity based currencies due to strong rally in base metal prices. Economic data was limited to consumer credit for November, which unexpectedly fell by –US$0.6bln against market expectations of a rise of US$5.0bln. In other news Atlanta Fed Pres Guynn (voting member) said that it was hard to say when the Fed had done enough tightening as rates were already close to neutral and given the amount of tightening already undertaken. He was optimistic on growth despite seeing a more moderate housing market and felt that expectations remained contained. In other markets the Dow Jones broke through 11,000 for the first time in 4-1/2 years. Looking ahead, there is no major data to be released in the States today.

• The Euro eased from 1.2153 to 1.2057, before closing in New York around 1.2070. Germany”s current account showed a surplus of 8.1 bln euro in November, compared with 6.2 bln in October, while the trade surplus totaled 13.3 bln euros in November, up from 12.2 bln in October. The data had no impact on the currency as the move was put down to some profit-taking given the Euro rally since the start of the year. In the Eurozone, French industrial production is expected to rebound for the month of November.

• The Japanese yen gave back some of its recent gains, easing from JPY113.80 per US dollar to JPY114.73, before closing in New York near JPY114.40. In Japan later today, the market expects real expenditure for all Japanese households increasing by 1.4%y/y in Nov.

• The Sterling hit a three-week high against the dollar of 1.7724 and rose to a two-week peak versus the EUR today in anticipation of a better-than-expected UK retail sales data due for release later today. The rally could not be sustained as sterling traded back down to 1.7631 before closing in New York at 1.7660.

• The Aussie lifted from a low of 0.7501 to trade to a high of 0.7545, before closing near its highs in New York. Aussie remains well supported despite soft retail sales data yesterday combined with blow out in the trade deficit today. The November trade deficit came in at A$2.5 billion compared with market expectations for a deficit of A$1.9 billion.

TECHNICAL COMMENTARY

• Euro – 1.2140

The Euro has started to retrace and is targeting initial support at 1.2005 (Jan 4 low).This is followed by secondary support at 1.1931 (former resistance from Dec 28). Initial resistance now located at 1.2181 (Jan 6 high) followed by 1.2208 (Oct 6 high).

• Yen – 114.00

The breach of the formerly supportive 115.52 level from Dec 19 establishes a pattern of lower lows and lower highs and reinforces the down-trend from Dec 5”s 121.41 trend top. The support now converts into initial resistance at 115.52 (former support from Dec 19) followed by 116.30 (Jan 6 high). Initial support is located at 113.73 (former resistance from Jul 20) followed by 113.53 (61.8% retracement of the 108.76 to 121.41 advance).

• Pound – 1.7705

Initial support is located at 1.7619 (former resistance from Jan 4) followed by 1.7513 (Jan 6 low). Initial resistance is located at 1.7810 (Dec 14 high) followed by 1.7904 (Oct 27 high).

• Aussie – 0.7525

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7444 (Jan 5 low) followed by 0.7398 (Jan 4 low).