Australian FOREX Daily Outlook 12/12/2007

Federal Reserve cut rates by 25 basis points, as stock plunge in retaliation.

CURRENCY TRADING SUMMARY –12 DECEMBER 2007 (00:30GMT)

·U.S. Dollar Trading (USD) was subject to a volatile session, as the Federal Reserve moved to cut rates by 25 basis points as widely expected. As a result, traders trimmed bets that the Federal Reserve would be inclined to cut rates any further without depending on data. The Central Bank also decided upon a 25 bpt cut in the discount rate to other lending institutions as opposed to the widely anticipated 50 bpt. Accompanying statements from the Federal Reserve were relatively dovish, referring to economic growth slowing, ongoing housing concerns weighing on consumer and business sentiment, before highlighting increased uncertainty to inflation and growth due to “deterioration in financial markets”. In U.S. share markets the NASDAQ was down -66.00 (-2.45%) whilst the Dow Jones was also down by -294.26 (-2.14%) on markets reacting to a hope of a 50 basis point cut by the central bank. Crude oil, rose by US$1.89 a barrel to US$89.75. Wednesday key piece of data includes the Trade Balance for the month of October.

·The Euro (EUR) eased post rate announcement Fed rate cut. In data news out of the Eurozone, the German ZEW survey had come lower than expectations at -37.2, as opposed to -32.5 forecasted. Overall the EURUSD traded with a low of 1.4650 and a high of 1.4751 before closing the day at 1.4652 in the New York session. Industrial Production the key piece of data out of the EZ on Wednesday.

·The Japanese Yen (JPY) was a big mover as disappointment by the Federal Reserve 25 bpt cut (whilst pockets of the market had relied on 50 bpt) caused stock prices to plunge triggering carry trades to unwind. Overall the USDJPY traded with a low of 110.48 and a high of 112.15 before closing the day at 110.63 in the New York session.

·The Sterling (GBP) fell 0.5% after the Federal Reserve cut its benchmark interest rate by a quarter-percentage point, less than some traders had bet on.GBP also suffered in it reputation as high yielding carry trade. Overall the GBPUSD traded with a low of 2.0331 and a high of 2.0519 before closing the day at 2.0336 in the New York session.

·The Australian Dollar (AUD) tumbled on the Fed announcement and on plunging stock prices. Overall the AUDUSD traded with a low of 0.8714 and a high of 0.8895 before closing the day at 0.8723 in the New York session.

·Gold (XAU) Gold and rose on speculation that a third cut in U.S. interest rates this year by the Federal Reserve will erode the value of the dollar and boost the appeal of the precious metals as alternative investments. But it fell after the Federal Reserve cut its benchmark interest rate by only a quarter-percentage point. Overall the XAU traded with a low of 801.50 and a high of 813.00.

TECHNICAL COMMENTARY

·Euro – 1.4665

Initial support at 1.4641 (Dec 10 low) followed by 1.4600 (Dec 7 low). Initial resistance is now located at 1.4770 (Dec 12 high) followed by 1.4800 (61.8% retracement of the 1.4968 to 1.4527 decline).

·Yen – 110.90

Initial support is located at 110.63 (Dec 6 low) followed by 109.48 (Nov 29 low). Initial resistance is now at 111.88 (Dec 10 high) followed by 112.88 (Nov 9 high)

·Pound – 2.0365

Initial support at 2.0299 (Dec 10 low) followed by 2.0181 (Dec 6 low). Initial resistance is now at 2.0507 (50% retracement of the 2.0833 to 2.0181 decline) followed by 2.0525 (Former support Dec 3)

·Australian Dollar – 0.8765

Initial support a 0.8728 (Dec 10 low) followed by 0.8661 (Dec 5 low). Initial resistance is now at 0.8835 (Dec 10 high) followed by 0.8921 (Nov 28 high)

·Gold – 805.60

Initial support at 777.20 (Dec 3 low) followed by 773.0 (Nov 20 low). Initial resistance is now at 812.50 (Dec 10 high) followed by 815.70 (November 27 high)