Australian FOREX Daily Outlook 12/05/2006

MARKET SUMMARY –12MAY06 (05:00GMT)

• The Dollar weakened across the board overnight following softer than expected US retail sales. US retail sales rose by 0.5% in April, below expectations centered on a 0.7% gain. In other data US jobless claims fell by 1,000 in the latest week to 324,000. In other markets, US shares were sharply lower as investors fear that higher energy prices would boost inflation and lead to further rate hikes. The Dow Jones index fell by 142pts while the NASDAQ was down 48pts. Crude oil rose overnight on continued concerns about gasoline supplies. Crude oil was up by US$1.19 to US$73.32 a barrel. Looking ahead and the trade balance for March is due out later today in the States. The market expects the trade balance to deteriorate to US$67bln compared with US$65.74bln in February.
  

• The Euro traded in a range of 1.2687 to 1.2871, before closing at 1.2835 in the New York session. On the data front, Eurozone GDP growth was reported at 0.6% q/q which was as expected.
  

• The Japanese yen traded in a range of 110.13 to 111.51 versus the dollar before closing at 110.75 in the New York session. Today in Japan Finance Minister Tanigaki once again restated Japan FX policy by saying rapid moves in FX was undesirable.
  
• The Sterling rallied strongly from 1.8532 to a high of 1.8855, before closing at 1.8825 in the New York session. Sterling touched the one-year high on data showing UK manufacturing production rose 0.7 percent in March, more than three times stronger than the 0.2 percent gain analysts had expected and the strongest rise since April 2005.
  

• The Aussie traded in a range of 0.7696 to 0.7791, before closing at 0.7760 in the New York session.
  
• Gold yet again reached 25 year high at 726USD an ounce, supported by fund and speculative buying as investors still using the metals as an alternative to USD weakness and high oil prices.

TECHNICAL COMMENTARY

• Euro 1.2860

Initial support at 1.2660 (May 9 low) followed by 1.2571 (May 4 corrective low). Initial resistance is now located at 1.2889 (61.8% retracement of the 1.3663 to 1.1638 decline) followed by 1.3000 (Psychological resistance).

• Yen 110.20

Initial support is located at 109.21 (61.8% retracement of the 101.67 to 121.41 advance) followed by 108.76 (Sep 5, 2005 reaction low). Initial resistance is now at 111.66 (38.2% retracement of the 114.18 to 110.10 decline) followed by 112.20 (May 8 high).

• Pound – 1.8850

Initial support at 1.8513 (May 9 corrective low) followed by 1.8335 (May 4 corrective low). Initial resistance is now at 1.8913 (May 11, 2005 corrective high) followed by 1.9078 (May 5, 2005 corrective high).

• Aussie – 0.7770

Initial support at 0.7680 (May 11 low) followed by 0.7663 (May 9 corrective low). Initial resistance is now at 0.7811 (Jun 21, 2005 high) followed by 0.7843 (Apr 29, 2005 reaction high).