Australian FOREX Daily Outlook 16/02/2006

MARKET SUMMARY –16FEB06 (05:00GMT)

• The Dollar rose against the major currencies overnight after Federal Reserve Chairman Ben Bernanke pointed to the potential for further rate hikes in coming months. In testimony to the House of Representatives, Bernanke said that “the risks exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately – in the absence of countervailing monetary policy action – to further upward pressure on inflation. Data released overnight showed US industrial production fell 0.2% in January compared to the expectation of a 0.2% rise. However, the December increase was revised up from 0.6% to 0.9%. Capacity utilisation was at 80.9% in January, while the December outcome was revised higher to 81.2% from the earlier reported 80.7%. In other markets, US shares were up with investors comforted by Bernanke’s assessment on the economy. The Dow Jones finished up 30pts while the NASDAQ was up 14pts. Crude oil continued its decline and fell below US$58 a barrel following larger than expected increases in oil product inventories in the latest week.Crude oil fell by US$1.97 to US$57.70 a barrel. Looking ahead, housing starts and building permits will be released later today in the States. Higher interest rates are starting to have an impact with both housing starts and permits off their recent highs. The market expects 2,015k housing starts after 1,933k in December and for building permits to remain steady at 2,075k.

• The Euro traded higher initially to 1.1955 before falling to a low of 1.1871 after Bernanke’s testimony. The Euro closed the New York session at 1.1890.

• The Japanese yen fell from JPY116.75 per US dollar to JPY118.13, before closing at JPY117.85 in New York. The market is now waiting for Q4 GDP due out tomorrow with economists expecting a rise of 1.2% q/q.

• The Sterling rose initially to trade to a high of 1.7490 after a surprisingly hawkish BOE inflation report. The Sterling traded down to 1.7332 after Bernanke’s testimony and closed at 1.7410 in New York. The BOE surprised the market by raising its central projection for GDP growth in the near term. In addition King argued that any output gap was only small and that he was not sure yet whether second round effects from higher oil prices were still to come.

• The Aussie traded down from 0.7444 to a low of 0.7372, before closing at 0.7390 in New York.

• Gold traded lower today, however traded higher than yesterday’s five week lows, with traders looking for clearer direction in the market. Gold prices have been volatile in the past two weeks, hitting 25 year highs of $574.60 an ounce then retreating by $40only to rebound again. Soft oil prices and comments by Bernanke put pressure on the metal. Traders say that the market is generally gold bullish however the risk of a downward correction is still quite high.

TECHNICAL COMMENTARY

• Euro 1.1880

Initial support at 1.1860 (Feb 14 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 117.90

Initial support is located at 116.76 (Feb 15 low) followed by 116.41 (50% retracement of the 113.41 to 119.41 advance). Initial resistance is now at 118.28 (Feb 13 high) followed by 118.96 (Feb 10 high).

• Pound – 1.7400

Initial support at 1.7284 (Feb 14 low) followed by 1.7129 (Dec 28, 2005 low). Initial resistance is now at 1.7486 (Feb 15 high) followed by 1.7577 (Feb 10 high).

• Aussie – 0.7380

Initial support at 0.7356 (Feb 14 low) followed by 0.7317 (76.4% retracement of the 0.7233 to 0.7590 advance). Initial resistance at 0.7442 (Feb 15 high) followed by 0.7501 (Feb 6 high).