Australian FOREX Daily Outlook 18/09/2006

CURRENCY TRADING SUMMARY –18 SEPTEMBER06 (05:00GMT)

• U.S. Dollar Trading (USD) was generally stronger against the major currencies in the overnight foreign exchange trading session as traders adjusted positions ahead of the G7 meeting over the weekend and US CPI came in on expectations. Headline CPI posted a 0.2% increase together with the Core CPI for the month of August. Industrial production disappointed coming in at -0.1% for the month of August compared to a 0.2% expectation. Finance ministers from the G7 urged China to make its currency more flexible as well as other emerging economies with current account surpluses. In other markets, the Dow Jones rose by 33pts while the NASADAQ climbed 6pts as the market took the inflation data as being positive. Crude oil rose by US11c to close at US$63.33 as traders short-covered their positions ahead of G7. Looking ahead, current account and TIC data is due out tonight.

• The Euro (EUR) traded within a low of 1.2632 and a high of 1.2735, before closing at 1.2665 in the New York session. On the data front, Eurozone HICP came in as expected at 1.5% but the core was slightly weaker coming in at 0.1% compared to an expected 0.2% for the month of August. During the G7 meetings over the weekend, the Eurozone was mentioned as having strong growth prospects helping to help offset a slowdown in the US. Looking ahead, industrial production is due out today.

• The Japanese Yen (JPY) traded within a low of 117.28 and a high of 118.11 versus the dollar, before closing at 117.54 in the New York session. On the data front, leading indicators came in less than the previous result of 54.5 at 27.3. A comment after official meetings over the G7 weekend stated that Japan seemed to have shrugged of deflation worries and is set for a steady economic recovery. However, there is risk to this scenario if the US dollar weakens too rapidly and if the Bank of Japan raises interest rates too soon. As such, the IMF doesn’t expect any further interest rate hikes out of Japan anytime in the near future. Looking ahead, Japan enjoys the respect for the aged day holiday.
  

• The Sterling (GBP) traded within a low of 1.8756 and a high of 1.8881, before closing at 1.8808 in the New York session.
  

• The Australian Dollar (AUD) traded within a low of 0.7500 and a high of 0.7560, before closing at 0.7520 in the New York session.
  
• Gold (XAU) fell by US$3.00 to US$573 an ounce on the back of a firmer greenback and squaring of positions ahead of the G7 weekend.

TECHNICAL COMMENTARY

• Euro 1.2645

Initial support at 1.263 (Sep 15 low) followed by 1.257 (76.4% retracement of the 1.2456 to 1.2941 advance). Initial resistance is now located at 1.2755 (Sep 14 high) followed by 1.2836 (Sep 6 high).

• Yen 117.90

Initial support is located at 117.26 (Sep 15 low) followed by 116.6 (Sep 11 low). Initial resistance is now at 118.16 (Sep 12 high) followed by 118.9 (Apr 11 reaction high).

• Pound – 1.8790

Initial support at 1.8754 (Sep 14 low) followed by 1.8601 (Sep 11 low). Initial resistance is now at 1.892 (Sep 14 high) followed by 1.8978 (76.4% retracement of the 1.9094 to 1.8601 decline).

• Australian Dollar – 0.7515

Initial support at 0.7482 (Sep 13 low) followed by 0.7442 (61.8% retracement of the 0.7269 to 0.7722 rally). Initial resistance is now at 0.7574 (38.2% retracement of the 0.7722 to 0.7482 decline) followed by 0.7601 (Sep 8 high and 50% ret 0.7722 to 0.7482 decline).

• Gold – 581

Initial support at 570.98 (Sep 15 low) followed by 561.0 (Jun 20 low). Initial resistance is now at 595.35 (Sep 14 high) followed by 599.9 (Sep 12 high).