Australian FOREX Daily Outlook 20/03/2006

MARKET SUMMARY –20MAR06 (05:00GMT)

• The Dollar continued to lose ground against the Euro and Japanese yen on Friday as traders scaled back expectations of possible US rate hikes. However, the greenback gained against the high yielding currencies (Australian &amp NZ dollar). US economic data was mixed on Friday. US industrial production rose by 0.7% in February, in line with expectations. Capacity utilization rose from 80.8% to 81.2%. The University of Michigan confidence data came in unchanged in March at 86.7, down from market expectations centered on a rise to 88.0. In other markets, US shares rose on Friday with investors encouraged by solid economic data and lower oil prices. The Dow Jones rose by 26pts and the NASDAQ rose by 7pts. Crude oil prices eased on Friday as traders continue to weigh higher US crude stockpiles against ongoing geopolitical concerns. Crude oil fell by US 81 cents to US$62.77 a barrel. Looking ahead, leading indicators for February will be released in the States later today. The market expects a fall of 0.3% in the month, after a strong rise of 1.1% in January.

• The Euro traded in a range of 1.2140 to 1.2208, before closing at 1.2190 in the New York session. On the data front, Eurozone real industrial production data was flat in January, below market expectations for a rise of 0.3%. Annual growth in industrial production stands at 2.5% from an upwardly revised 2.8% in December. In other news, ECB’s Gonzalez-Paramo reinforced the hawkish view of the ECB saying that risks on inflation have not diminished since December, and that the broader Eurozone recovery is broader and stronger than previously expected.
  
• The Japanese yen traded in a range of 115.70 to 116.84 versus the dollar, before closing at 115.92 in the New York session. In Japan on Friday, the Japanese leading economic index declined slightly to 81.8% in January, from 85.0% in December 2005. This was below market consensus that centered on an outcome of 86.4%.

• The Sterling traded in a range of 1.7512 to 1.7577, before closing at 1.7560 in the New York session.
  
• The Aussie sank to an 11-week low of 0.7265 on Friday night despite an otherwise mildly weaker dollar. The Aussie traded down from a high of 0.7345, before closing at its lows in the New York session. The Aussie was stung even harder on the crosses: Aud/Yen off nearly 2 big figures, Aud/Euro down to a 10 month low.

TECHNICAL COMMENTARY

• Euro 1.2170

Initial support at 1.2140 (Mar 17 reaction low) followed by 1.2033 (Mar 16 reaction low). Initial resistance is now located at 1.2209 (Mar 17 high) followed by 1.2324 (Jan 25 high).

• Yen 116.30

Initial support is located at 115.71 (Mar 17 low) followed by 115.45 (Feb 28 low). Initial resistance is now at 117.90 (Mar 16 reaction high) followed by 119.41 (Feb 3, 2006 high).

• Pound – 1.7540

Initial support at 1.7416 (Mar 15 low) followed by 1.7230 (Mar 10 low). Initial resistance is now at 1.7626 (Mar 6 high) followed by 1.7667 (61.8% retracement of 1.7937 to 1.7230).

• Aussie – 0.7250

Initial support at 0.7233 (Dec 27, 2005 low) followed by 0.7066 (76.4% retracement of the 0.6781 to 0.7989 rally). Initial resistance at 0.7378 (Mar 9 high) followed by 0.7406 (Mar 7 high).