Australian FOREX Daily Outlook 10/05/2006

MARKET SUMMARY –10MAY06 (05:00GMT)

• The Dollar continued to trade lower against the major currencies overnight due to rallying metals prices. In other markets, US shares moved higher overnight with the Dow Jones close to its record high. The Dow Jones index rose by 55pts while the NASDAQ fell by 7pts. Crude oil trade higher as the US Government was dismissive in regards to yesterday’s letter from the Iranian President. Crude oil rose by US92c to US$70.69 a barrel. The market is keenly awaiting the FOMC decision and the Treasury FX report due out later today in the States. The market expects the Fed to raise by 25bp but the main focus will be on the accompanying statement. Economists expect the Fed to reinforce that the rate hiking cycle is coming to an end. The market does not see China being named as a currency manipulator in the Treasury FX report.
  
• The Euro traded in a range of 1.2661 to 1.2784, before closing at 1.2755 in the New York session. Industrial production in Germany disappoints with industrial output dropping by 2.4% in March versus consensus for a 0.5% improvement.
  
• The Japanese yen traded in a range of 110.88 to 111.94 versus the dollar, before closing at 111.10 in the New York session.
  
• The Sterling traded in a range of 1.8515 to 1.8690, before closing at 1.8670 in the New York session. The Monetary Policy Committee’s inflation forecast is due out later today in the UK with likely support renewed for tightening expectations given the positive data of late.
  

• The Aussie rallied overnight from a low of 0.7633 to a high of 0.7743, before closing near its highs in the New York session. Assisting the Aussie was the strong rally by metals and the Federal Budget which was released overnight. The Australian Budget is seen as expansionary adding approximately 0.5% to GDP and hence potentially hawkish for the RBA.
  
• Gold reached new 25 year high near 700$ an ounce today on dollar weakness, was also supported by political tensions over Iran’s nuclear ambitions, inflation worries and talk about China gold reserves. Some Chinese economists urged Beijing to upgrade its gold reserve because the Forex reserves of the country had became the world’s largest, as it was reported in an official industry newspaper.

TECHNICAL COMMENTARY

• Euro 1.2760

Initial support at 1.2660 (May 9 low) followed by 1.2571 (May 4 corrective low). Initial resistance is now located at 1.2789 (May 8 high) followed by 1.2889 (50% retracement of the 1.3663 – 1.1638 decline).

• Yen 111.20

Initial support is located at 110.88 (May 9 low) followed by 110.00 (Psychological support). Initial resistance is now at 112.20 (May 8 high) followed by 114.18 (May 4 reaction high).

• Pound – 1.8650

Initial support at 1.8474 (May 5 low) followed by 1.8335 (May 4 corrective low). Initial resistance is now at 1.8692 (Mar 8 corrective high) followed by 1.8706 (Mar 28, 2005 low).

• Aussie – 0.7720

Initial support at 0.7600 (May 3 low) followed by 0.7555 (May 2 low). Initial resistance is now at 0.7745 (May 8 high) followed by 0.7760(76.4% retracement of the 0.7990 to 0.7015 decline).