Australian FOREX Daily Outlook 13/08/2007

Liquidity injection from Fed and ECB in attempt to stabilize financial markets.

CURRENCY TRADING SUMMARY –13 AUGUST 2007 (00:30GMT)

• U.S. Dollar Trading (USD) continued to strengthen against a basket of majors excluding the Japanese Yen in a volatile market. The USD remained distant from recent 15 year lows as a plunge in global markets ensured the investors took a minimized exposure approach, with the majority continuing to repatriate overseas funds. Forecasts now lie for the Federal Reserve to deliver a 25 point cut in the call rate by September. In other news, The Fed injected US$35 billion in an attempt for liquidity to stabilize overnight rates in line with targets. In U.S. share markets the NASDAQ fell 11.60 points (-0.45%) whilst the Dow Jones also fell another 31.14 points (-0.23%). Crude oil gained ever so slightly by US$0.09 a barrel to US$71.68. Looking ahead, key data out of the U.S. will be released in the form of Core Retail Sales, with economist expecting a rise the previous -0.4% to 0.4% for the month of July.

• The Euro (EUR) continued to lose ground against the USD as markets began pricing in a less than 50% chance that the ECB would look to hike rates in September, as opposed to the 70% chance earlier in the week. The Euro also suffered as a high yielding currency and a drop in global financial markets. Stability was seen in the form of the ECB adding 61.05 billion Euros in liquidity to financial markets. Overall the EURUSD traded with a range of a low 1.3642 and a high of 1.3706 before closing the day at 1.3695 in the New York session.

• The Japanese Yen (JPY) was the lone currency to gain against the Dollar, as ongoing carry trade unwinding remained a prominent trend in the market. The Japanese Yen rose sharply for the second successive session following steep decline in global equity markets. Late Friday, the Yen turned down against the dollar after the Federal Reserve injected cash into the banking system for a second time, supporting stocks and reassuring nervous financial markets, resulting in slightly higher stocks prices, however gains were capped by bargain chasing investors. The Euro also sharply rebounded against the Japanese currency, and was trading up 0.3 percent at 162.00 yen. Overall the USDJPY traded with a range of a low 117.21 and a high of 118.75 before closing the day at 118.32 in the New York session. Looking ahead a heavy data day is expected out of the Japanese markets with the release of GDP, and Current Account.

• The Sterling (GBP) eased against the greenback following risk aversion of high yielder’s. The GBP was worst affected as it holds the highest interest rate of all the G7 nations. Overall the GBPUSD traded with a range of a low 2.0154 and a high of 2.0266 before closing the day at 2.0218 in the New York session. Plenty of focus will be placed on the PPI data out of the UK on Monday, with forecast at 0.2% (Prior: 0.2%) and 2.2% (Prior: 2.1%) for the m/m and y/y respectively.

• The Australian Dollar (AUD) remained above key levels of support at 0.8400 through out the session, yet remained heavily pressured in its role as a high interest bearing currency. Overall the AUDUSD traded with a range of a low 0.8401 and a high of 0.8509 before closing the day at 0.8442 in the New York session.

• The Czech Crown (CZK) extended its gains into a second consecutive session on Friday morning as a sharp sell-off in global equity markets dented investors’ risk appetite and led some to pare crown-funded carry trades. Low Czech rates, at 3 percent the lowest in the European Union, have attracted investors into the crown as a cheap funding vehicle, causing it to decouple from neighboring central European currencies.

• Gold (XAU) rallied more than 2% on Friday as a safe haven, with stability from the Federal Reserve provided liquidity to keep financial markets operating smoothly. XAU traded with a low of 658.48 and a high of 676.23.

TECHNICAL COMMENTARY

• Euro 1.3690

Initial support at 1.3637 (Aug 1 low) followed by 1.3608 (Jul 30 low). Initial resistance is now located at 1.3819 (Aug 9 high) followed by 1.3853 (Jul 24 trend high).

• Yen 118.50

Initial support is located at 117.18 (Aug 6 low) followed by 116.58 (50% retracement of the 108.98 to 124.17 advance). Initial resistance is now at 118.76 (Aug 10 high) followed by 119.85 (Aug 8 high).

• Pound – 2.0235

Initial support at 2.0152 (Aug 10 low) followed by 2.0139 (50% retracement of the 1.9622 to 2.0656 advance). Initial resistance is now at 2.0270 (Aug 10 high) followed by 2.0400 (Aug 8 high)

• Australian Dollar – 0.8460

Initial support a 0.8399 (Aug 10 low) followed by 0.8354 (Jun 27 low). Initial resistance is now at 0.8511 (Aug 10 high) followed by 0.8664 (Aug 9 reaction high)

• Gold – 664.00

Initial support at 658.45 (Aug 10 low) followed by 645.60 (Jul 6 low). Initial resistance is now at 676.85 (Aug 8 high) followed by 687.40 (Jul 24 high)