Australian FOREX Daily Outlook 18/01/2006

MARKET SUMMARY – 18/01/06(03.00GMT)

• The Dollar lifted against major currencies overnight following stronger than expected capacity utilisation data.Capacity utilisation stands at a 5-year high and add to the case that the Fed will continue raising rates to arrest inflation pressures. Capacity utilisation rose more than expected to 80.7% from an upwardly revised 80.3% the previous month. US industrial production was also on the stronger side of the market’s expectation, rising 0.6% in December versus consensus of +0.5%. It was the third consecutive strong monthly increase, indicating production will make a decent contribution to December quarter GDP. The US empire manufacturing survey fell in January to 20.1 versus market expectation of 21.0. The breakdown showed that new orders remained steady at 27.2, shipments rose to 32.0 from 18.7 and the number of employees rose to 11.3 from 5.0. So although the headline index was down, a number of the key components increased (noting numbers above zero indicate expansion. In other markets, US stocks were lower following profit taking ahead of the reporting season. Weaker than expected earnings from Wells Fargo and US Bancorp and the oil price rising all contributed to the decline. The Dow closed down 62 pts with NASDAQ down 14. Crude oil hit a three and a half year high following militants stating they would broaden their attacks on Nigeria’s oil industry. Crude oil ended US2.39c higher at US$66.31 a barrel. Looking ahead and the most important data of the week for the dollar is core CPI for December is released in the States today. The market is looking for core CPI to remain stable at 0.2%.

• The Euro fell from 1.2139 to as low as 1.2053, before recovering late in the day to close at 1.2105 in New York. The euro eased back this on news that inflation in Germany, the single currency”s largest economy, eased back to its lowest level since August. The Federal Statistics Office revealed that consumer prices in December were 2.1 pct higher year-on-year, unchanged on the previous estimate, and in line with market expectations. In November, the annual rate stood at 2.3 pct. On a month-on-month basis, the rate was revised up to 0.9 pct from the previous estimate of 0.8 pct.In the Eurozone later today sees the release of industrial production. The market is forecasting for Eurozone industrial production to have a robust 0.9% gain on the month that would lift output growth to 1.4% yoy.

• The Japanese yen fell from JPY114.60 per US dollar to 115.91, before closing in New York at 115.50. This weak yen was in response to the Nikkei falling more than 400 points in Asia yesterday. This fall in the Nikkei was on the back of news of an investigation into a Japanese company. Also in Japan yesterday, consumer confidence for December came in at its highest level in 15 years according to figures by the cabinet office.

• The Sterling fell from 1.7699 to as low as 1.7589, before recovering to close at 1.7680 in New York. The UK CPI rose by 0.3% in December, bringing annual CPI inflation to 2.0% which was in line with analyst’s expectations.

• The Aussie trade down from 0.7554 to as low as 0.7507, before closing in New York at 0.7525. Base metal prices were mixed overnight, with Aluminium and copper both lower on profit taking. Zinc however continue its rise setting a fresh record high.Gold fell by $2.70 overnight to US$554.30 from profit taking and a stronger greenback.

TECHNICAL COMMENTARY

• Euro – 1.2100

Initial support at 1.2007 (Jan 12 low) followed by secondary support at 1.1980 (50% retracement of the 1.1778 to 1.2181 advance). Initial resistance is now located at 1.2181 (Jan 6 high) followed by 1.2226 (61.8% retracement of the 1.2590 to 1.1638 decline).

• Yen – 115.60

Initial support is located at 114.57 (Jan 17 low) followed by 113.79 (Jan 16 low). Initial resistance is located at 115.80 (50% retracement of the 118.18 to 113.41 decline) followed by 115.90 (trendline from early December).

• Pound – 1.7640

Initial support is located at 1.7577 (Jan 12 low) followed by 1.7516 (Jan 11 low). Initial resistance is located at 1.7810 (Dec 14 high) followed by 1.7901 (Oct 27 high).

• Aussie – 0.7535

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7481 (Jan 11 low) followed by 0.7444 (Jan 5 low).