Australian FOREX Daily Outlook 10/11/2006

Democrats win Senate. US trade balance better than expected. Commentary from China moves the markets.

CURRENCY TRADING SUMMARY –10 NOVEMBER 06 (23:30GMT)

• U.S. Dollar Trading (USD) was initially stronger against the majors in the overnight forex trading session as US trade balance came in better than expected. The trade balance for September resulted in a shortening of the deficit to USD$64.3bln from an expected deficit of USD$66bln. The University of Michigan consumer sentiment survey fell to 92.3 from a 93.6 estimate for November. The greenback suffered on the back of announcements from China that it had a clear plan to diversify its foreign exchange reserves. Considering the Chinese have reserves totaling almost USD$1trillion and mostly USD denominated, any diversification no matter how small would be detrimental to the USD according to analysts. In other markets, the Dow Jones index dropped 73pts and the NASDAQ gave up 8pts as investors focused on higher oil prices and weaker consumer sentiment. Crude oil moved up US$1.32 to US$61.15 a barrel as distillate stocks were seen to be lower in Europe as well as the US.
  

• The Euro (EUR) traded within a low of 1.2752 and a high of 1.2846, before closing at 1.2828 in the New York session. On the data front, the EUR benefited from comments from China resulting in heavy buying of EUR/JPY.
  

• The Japanese Yen (JPY) traded within a low of 117.72 and a high of 118.57 versus the dollar, before closing at 117.97 in the New York session. Looking ahead, Private machinery orders are due out today.
  

• The Sterling (GBP) traded within a low of 1.8977 and a high of 1.9083, before closing at 1.9056 in the New York session. On the data front, the Bank of England raised rates by 25 basis points as expected to 5%. Market was expecting some direction from the BoE with regards to the next rate hike, but it was not forthcoming.
  

• The Australian Dollar (AUD) traded within a low of 0.7645 and a high of 0.7708, before closing at 0.7678 in the New York session.
  

• Gold (XAU) rose by US$18.50 to US$636.80 an ounce as USD weakness helped lift the yellow metal past USD$630.

TECHNICAL COMMENTARY

• Euro 1.2830

Initial support at 1.2721 (Nov 7 low) followed by 1.2677 (Oct 31 low). Initial resistance is now located at 1.2880 (Aug 31 high) followed by 1.2941 (Aug 21 reaction high).

• Yen 117.80

Initial support is located at 117.7 (Nov 9 low) followed by 117.25 (Nov 7 low). Initial resistance is now at 118.74 (Oct 27 high) followed by 119.67 (Oct 24 high).

• Pound – 1.9065

Initial support at 1.8974 (Nov 9 low) followed by 1.8948 (Nov 6 low). Initial resistance is now at 1.9146 (Aug 8 high) followed by 1.9129 (Apr 20, 2005 reaction high).

• Australian Dollar – 0.7690

Initial support at 0.7633 (38.2% retracement of the 0.7414 to 0.7769 advance) followed by 0.7592 (50% retracement of the 0.7414 to 0.7768 advance). Initial resistance is now at 0.771 (Nov 11 high) followed by 0.7769 (Nov 1 high).

• Gold – 635

Initial support at 613.4 (Nov 8 low) followed by 598.5 (Oct 31 low). Initial resistance is now at 629.8 (Nov 6 high) followed by 640.6 (Sep 6 high).