Australian FOREX Daily Outlook 19/07/2007

Bernanke indicates inflationary risks, and addresses slowing housing sector. RBA comfortable with an expensive AUD.

CURRENCY TRADING SUMMARY –19 JULY 2007 (00:30GMT)

• U.S. Dollar Trading (USD) fell on Wednesday continually trading near a record lows against a basket of majors, following Chairman Bernanke’s admission that recent housing sector woes, may in fact worsen. In his testimony before Congress, Bernanke reiterated that inflation is the Fed’s top concern but said weakness in the housing sector would likely crimp growth in coming quarters. In his prepared remarks, Bernanke said: “Rising delinquencies and foreclosures are creating personal, economic and social distress for many homeowners and communities, problems that likely will get worse before they get better.” On the data front, US Core CPI came in on expectations at 0.2% for the month. In U.S. share markets the NASDAQ fell by -12.8 (-0.47%) whilst the Dow Jones also eased by -53.33 points (-0.38%). Crude oil rallied on Wednesday by US$1.03 a barrel to US$75.05 driven by a weaker US dollar. Looking ahead, Key data in the form of the Philly Fed survey and the FOMC minutes of the June 28 meeting will be made public today. Chairman Bernanke will also testify to the senate on Thursday.

• The Euro (EUR) eased initially during the New York session once data out of the U.S. indicated a rebound in the Housing Sector, before Federal Reserve Chairman Bernanke’s speech ensured the Euro returned to trade near record highs. In data news the EZ trade balance came in slightly worse than expected at 1.7 bln for the month of May. Overall the EURUSD traded with a range of a low 1.3752 and a high of 1.3834 before closing the day at 1.3795 in the New York session.

• The Japanese Yen (JPY) was range bound for much of the session before rallying on a broadly weaker dollar. Overall the USDJPY traded with a range of a low 121.58 and a high of 122.34 before closing the day at 121.88 in the New York session.

• The Sterling (GBP) eased from 26 year highs as BoE minutes showed a split vote in the recent rate hike, losses were capped due to a broadly weaker dollar. On the data front, Unemployment Rate in the UK dropped to 5.4%. Overall the GBPUSD traded with a range of a low 2.0462 and a high of 2.0547 before closing the day at 2.0535 in the New York session. Looking ahead Retail sales are due for release on Thursday which is expected to increase 0.3 percent on the month and 3.5 percent for the year.

• The Australian Dollar (AUD) moved during the Asian session as RBA Governor Stevens stated in his talk that he was not surprised with recent strength in the AUD, when considering the exchange against the NZD, EUR and the CAD, the AUD did not look overvalued, lending significant support to the Aussie Dollar. Overall the AUDUSD traded with a range of a low 0.8719 and a high of 0.8786 before closing the day at 0.8765 in the New York session.

• The Canadian Dollar (CAD) was softer versus the greenback on Wednesday, as an unexpected fall in inflation dented expectations for the number of future interest rate hikes by the central bank. Domestic bonds prices were mostly higher after the data. Overall the USDCAD traded with a range of a low 1.0402 and a high of 1.0479 before closing the day at 1.0449 in the New York session.

• Gold (XAU) jumped by US$7.80 an ounce to US$673.70 as further uncertainty in the US housing sector prompted investors to search for safe haven alternatives.

CURRENCY PAIR IN FOCUS

• CAD/JPY eased following a drop in inflation following a poor reading in Canadian CPI numbers.

TECHNICAL COMMENTARY

• Euro 1.3805

Initial support at 1.3730 (July 11 low) followed by 1.3592 (Jul 10 low). Initial resistance is now located at 1.3834 (Jul 18 trend high) followed by 1.3852 (Open + (Last weeks range * 1.618).

• Yen 121.95

Initial support is located at 121.58 (Jun 18 low) followed by 120.76 (June 8 reaction low). Initial resistance is now at 122.62 (Jul 13 high) followed by 123.68 (Jul 7 high)

• Pound – 2.0515

Initial support at 2.0347 (Jul 17 low) followed by 2.0243 (Jul 10 low). Initial resistance is now at 2.0550 (July 18 trend high) followed by 2.0575 (June 1981 high)

• Australian Dollar – 0.8765

Initial support a 0.8717 (Jul 17 low) followed by 0.8653 (Jul 13 low). Initial resistance is now at 0.8792 (Jul 18 trend high) followed by 0.8827 (2.618 of 0.8333 -0.8514 from 0.8354)

• Gold – 665.70

Initial support at 658.90 (Jul 10 low) followed by 653.80 (Jul 9 low). Initial resistance is now at 674.00 (Jul 18 high) followed by 675.05 (May 14 low)