Australian FOREX Daily Outlook 18/09/2007

Spotlight on FOMC, as markets await.

CURRENCY TRADING SUMMARY –18 SEPTEMBER 2007 (00:30GMT)

·U.S. Dollar Trading (USD) stabilized gaining against a basket of currencies in an overly cautious market. With plenty of emphasis being placed on Tuesday’s FOMC decision, speculators were guarded on bets against the dollar. The NY Empire State manufacturing index dropped more than expectations on Monday to 14.7 (Forecast: 18 Previous: 25.06), yet did not prompt investors from pushing the greenback lower. In U.S. share markets the NASDAQ was down -20.52 points (-0.79%) whilst the Dow Jones also fell -39.10 points (-0.29%). Crude Oil prices reached fresh record highs on Monday on ongoing supply concerns. Further tensions with Iran ensured crude rose by US$1.80 a barrel to US$80.90. Looking ahead, the most anticipated FOMC in recent years is scheduled on Tuesday, September 18 at 1815 GMT. With current market volatility instigated by fallouts in the sub-prime mortgage market, many pundits are of the view that the Feds will look to cut the funds rate by 0.25% to sit at 5.00%. Much debate surrounds views of a possible 0.50% monetary loosening. As always, accompanying statements will also be paid much attention with traders awaiting any indication of future policy meetings. In other data news, TIC Flows for the month of July is expected to come in at 85 bln, down from the previous 120.90 bln. Whilst Core Producer Prices (m/m) is also made public, with forecast at 0.1% same as the previous for the month of August.

·The Euro (EUR) was well away from its recent all time high against the USD, as markets await the FOMC rate announcement. Interestingly, former Chairman of the Federal Reserve, Alan Greenspan indicated the Euro could replace the USD as the world’s primary reserve currency as quoted by a German Magazine. Overall the EURUSD traded with a range of a low 1.3849 and a high of 1.3888 before closing the day at 1.3865 in the New York session. On the data front, the German ZEW survey is set for release, with views that the figure will be at 75 for the month of September, down from the previous 80.2.

·The Japanese Yen (JPY) rebounded for the first time in six sessions on uncertainty in light of the of UK liquidity issues. With the credit crunch taking its toll on differing economies, traders looked to unwind risky one way bets against the Japanese Yen, allowing for the JPY to gain 0.3% against the Euro and the Dollar. Overall the USDJPY traded with a low of 114.68 and a high of 115.37 before closing the day at 115.10 in the New York session.

·The Sterling (GBP) lost significant ground on Monday as share prices in Northern Rock fell to a seven year low, pushing the pound down. Overall the GBPUSD traded with a low of 1.9916 and a high of 2.0092. Looking ahead key data out of the UK will include CPI and Retail Sales for Tuesday.

·The Australian Dollar (AUD) slid on Monday on the back of risk aversion, in which the AUDJPY cross fell 0.9%. Overall the AUDUSD traded with a high of 0.8440 before closing near day lows at 0.8330 in the New York session.

·Gold (XAU) rose to 16 month highs on views that the credit crisis will spur central banks to reduce interest rates and boost demand for precious metals as alternative investments to currencies. XAU traded with a low 706.80 and a high of 719.65.

TECHNICAL COMMENTARY

·Euro 1.3865

Initial support at 1.3825 (Sep 12 low) followed by 1.3765 (Sep 10 low). Initial resistance is now located at 1.3927 (Sep 13 trend high) followed by 1.4000 (Psychological resistance).

·Yen 114.90

Initial support is located at 114.37 (Sep 14 low) followed by 113.71 (61.8% retracement of the 112.61 to 115.49 advance). Initial resistance is now at 115.66 (Sep 7 high) followed by 116.61 (Aug 31 high).

• Pound – 1.9900

Initial support at 1.9900 (Round Number) followed by 1.9821 (76.4% retracement of the 1.9653 to 2.0366 advance). Initial resistance is now at 2.0096 (September 17 high) followed by 2.0226 (Sep 14 high)

• Australian Dollar – 0.8310

Initial support a 0.8310 (Sep 17 low) followed by 0.8238 (Sep 11 low). Initial resistance is now at 0.8459 (Sep 17 high) followed by 0.8460 (0.8051 plus 0.618 of 0.7674 – 0.8336).

• Gold – 716.20

Initial support at 702.75 (Sep 11 low) followed by 699.50 (Sep 10 low). Initial resistance is now at 720.20 (Sep 17 high) followed by 725.00 (Psychological round number)