Australian FOREX Daily Outlook 17/10/2007

Stock drop causing carry trade unwinds. Crude oil reaches record high with focus shifting to US CPI.

CURRENCY TRADING SUMMARY –17 OCTOBER 2007 (00:30GMT)

·U.S. Dollar Trading (USD) experienced a volatile session on Tuesday strengthening against a number of currencies in a market led by risk aversion. The USD also was relieved of views that further weakness in the currency was “unsustainable” sparking further rhetoric ahead of the G7 meeting this weekend. In his speech to the economic committee of New York, Fed chairman Ben Bernanke indicated that the housing slump would likely drag on the economic growth next year with the general outlook still remaining uncertain. In U.S share markets the NASDAQ was down 16.14 points (-0.58%) whilst the Dow Jones was also down -71.56 (-0.51%). Crude oil prices surged to record highs on Tuesday trading above US$88 for the first time. Crude gained by US$1.48 a barrel to US$87.61. Looking ahead all focus will be placed on the Housing starts and inflation data tonight.

·The Euro (EUR) held firm in a volatile sell off of a number of majors on Tuesday. The Euro was buoyed by reports showing Harmonized CPI data coming in on expectations at 0.4% for the month of September. Overall the Euro traded with a low of 1.4144 and a high of 1.4227 before closing the day at 1.4162 in the New York session.

• The Japanese Yen (JPY) was one of the only currencies to gain against the USD overnight in an environment where markets sold Yen crosses. As a result the Japanese Yen traded at a month high against the Euro and a two week high against the USD. Japan‘s currency advanced the most against the New Zealand dollar among the 16 most actively traded currencies, rising 2.8 percent to 86.97 yen. It strengthened 1.7 percent to 103.74 versus the Australian dollar, another popular currency for the so called carry trades. Overall the USDJPY traded with a low of 116.45 and a high of 117.47 before closing the day at 116.76 in the New York session.

·The Sterling (GBP) eased against a revived dollar and fell further versus the Euro as reports showed that U.K inflation had slowed more than consensus in September. In fact, inflation was at its slowest level since March 2006 dousing views that the BoE may look to hike rates in November. Overall the GBPUSD traded with a low of 2.0295 and a high of 2.0437 before closing the day at 2.0313 in the New York session. Looking ahead, Unemployment rate for the UK is due for release on Wednesday with expectations at 5.4%, same as previous.

·The Australian Dollar (AUD) was the worst performing currency (along with the NZD) on Wednesday as risk aversion prompted investors to unwind carry trades. As a result the AUDUSD traded with a low of 0.8823 and a high of 0.9013 before closing at 0.8866 in the New York session.

·Gold (XAU) was little changed near the highest price since 1980 as energy costs rose to a record, enhancing the precious metal’s appeal as an inflation hedge. XAU traded with a low of 754.00 and a high of 764.00.

TECHNICAL COMMENTARY

·Euro 1.4175

Initial support at 1.4102 (61.8% retracement of the 1.4015 and 1.4244 advance) followed by 1.4094 (Oct 10 low). Initial resistance is now located at 1.4227 (Oct 16 high) followed by 1.4244 (Oct 15 trend high)

·Yen 116.70

Initial support is located at 116.45 (Oct 16 low) followed by 116.28 (Oct 4 low). Initial resistance is now at 117.47 (Oct 16 high) followed by 117.95 (Oct 15 high).

• Pound – 2.0310

Initial support at 2.0295 (Oct 16 low) followed by 2.0247 (Oct 12 low). Initial resistance is now at 2.0439 (Oct 15 high) followed by 2.0476 (Oct 10 high)

• Australian Dollar – 0.8875

Initial support a 0.8822 (Oct 16 low) followed by 0.8795 (Oct 4 low). Initial resistance is now at 0.9013 (Oct 16 trend high) followed by 0.9078 (Oct 15 high).

• Gold – 763.55

Initial support at 753.75 (Oct 16 low) followed by 748.05 (Oct 15 low). Initial resistance is now at 767.05 (Oct 16 trend high) followed by 770.00 (Round number resistance)