Australian FOREX Daily Outlook 13/02/2006

MARKET SUMMARY –13FEB06 (05:00GMT)

• The Dollar fell against the major currencies following news of a widening trade deficit, only to claw back losses and extend gains by the end of the New York session. The US trade deficit widened to US$65.68 billion in December, up from US$64.69 billion in November. Economists had expected a deficit near US$65 billion. The November deficit was revised higher to US$64.7 billion from US$64.2 billion. In other markets, key US share indexes recovered from sharp losses in the morning session on Friday to finish with modest gains. The Dow Jones finished 36 points higher and the NASDAQ rose by 6 points. Crude oil prices fell to six-week lows on Friday. Investors believe that stockpiles will be more than adequate to meet an expected cold snap in the US Northeast. Crude oil fell by US78c to US$61.84 a barrel.

• The Euro rallied to a high of 1.2027 after the US trade deficit was released only to fall to a low of 1.1892, before closing at 1.1905 in New York.

• The Japanese yen traded in a range of 116.82 to 118.03 versus the dollar, before closing in New York at 117.80. The Japanese yen strengthened against the key crosses buoyed by strong data on Friday in Asia.Japanese core machinery orders rose by 6.8% in December – well above consensus forecasts for a rise of 1.5%. It suggests capex will continue to boost Japanese economic growth and it also reinforces the healthier economic outlook for Japan. Today in Japan, the current account surplus rose unexpectedly in December, gaining for a fourth straight month in a sign that an upturn in exports is adding to an economic recovery driven by domestic demand.The surplus in the current account, the broadest measure of trade in goods and services, was up 8.6 percent from a year earlier to 1.7484 trillion yen ($14.84 billion).

• The Sterling trade down from 1.7575 to as low as 1.7410, before closing at 1.7440 in the New York session. The market will focus on the release of PPI data and ODPM house prices which are due out later today in the UK.

• The Aussie traded down from 0.7438 to as low as 0.7370, before closing at 0.7380 in the New York session. Today in Australia, the quarterly Statement of Monetary Policy was released. The Reserve Bank cautioned it may yet have to raise interest rates should inflationary pressures prove stronger than expected, but also trimmed its forecast for inflation, suggesting the risks of such a tightening were small and distant. In a generally upbeat quarterly Statement on Monetary Policy, the Reserve Bank of Australia repeated a warning that “policy would need to respond in the event that demand or inflation pressures prove stronger than currently expected”. This mild tightening bias was widely expected by economists, although some investors had speculated the central bank might have shifted to a balanced view on rates. More surprisingly, the central bank trimmed its forecast for underlying inflation, predicting a gradual rise to 2.75 percent by the end of this year, from 2.5 percent last quarter, when previously it had foreseen a rise to 3 percent.

• Gold slumped on Friday by $18.10 to a session low of $550 an ounce, mainly due to fund selling and profit taking. US trade data had no impact on gold price. The sell off continued in Asia today as funds are rumored to be taking profit. Goldcurrently at $546 levels.

TECHNICAL COMMENTARY

• Euro 1.1900

Initial support at 1.1892 (Feb 10 low) followed by 1.1800 (76.4% retracement of 1.1638 to 1.2324). Initial resistance is now located at 1.2027 (Feb 10 high) followed by 1.2047 (Feb 6 high).

• Yen 117.85

Initial support is located at 116.87 (Feb 10 low) followed by 116.41 (50% retracement of the 113.41 to 119.41 advance). Initial resistance is now at 118.96 (Feb 10 high) followed by 119.41 (Feb 3 high).

• Pound – 1.7440

Initial support at 1.7377 (Feb 8 low) followed by 1.7320 (76.4% retracement of the 1.7129 to 1.7937 advance). Initial resistance is now at 1.7517 (Feb 7 high and former support from Jan 11) followed by 1.7643 (Feb 6 high).

• Aussie – 0.7370

Initial support at 0.7369 (61.8 retracement of the 0.7233 to 0.7590 advance) followed by 0.7317 (76.4% retracement of the 0.7233 to 0.7590 advance). Initial resistance at 0.7451 (Feb 7 high and area of former support from Jan 19) followed by 0.7501 (Feb 6 high).