Australian FOREX Daily Outlook 20/04/2007

Speculation on Chinese Interest Rate hike causes Carry Trade unwinding. UK Retail Sales sure to generate market interest.

CURRENCY TRADING SUMMARY –20 APRIL 07 (23:30GMT)

• U.S. Dollar Trading (USD) was mixed against all majors on Thursday. Although initial jobless claims came inworse than expected with the figure of 339k higher than the expected 323k. In other data the Philly Fed survey which shows business activity in the US Mid-Atlantic region was unchanged at 0.2, as markets shrugged of both pieces of data. In US share markets, the NASDAQ fell by 5.15 points (-0.2%) whilst the Dow Jones rose by 4.79 points (0.04%). Crude oil fell by US$1.38 a barrel to US$61.75 a barrel.

• The Euro (EUR) slipped away from near two year highs against the USD. Overall the Euro traded with a range of a low 1.3561 and a high of 1.3620 before closing the day at 1.3601 in the New York session. .

• The Japanese Yen (JPY) was the biggest mover on Thursday as investors sought to unwind carry trades with a decline in risk appetite caused by expectations that accelerating growth in China could spur Beijing to raise interest rates. Any future slowdown in China as a result of increased interest rates, is seen to hinder demand for emerging market and other risky assets that have supported the carry trade in recent times. In other news, officials stated that Japan’s economy was on the road to recovery and the yen had already begun to reflect that. Overall, the JPY traded with a range of a low 117.61 and a high of 118.69 before closing the day at 118.37 in the New York session.

• The Sterling (GBP) eased from 26 year high levels reached the previous day as investors unwound carry trades on the high yielding British-currency. Overall the GBP, traded with a low of 1.9987 and a high of 2.0094 before closing the day at 2.0017 in the New York session. Looking ahead, although markets have fully priced in a BoE rate hike by 25 basis points in the next MPC meeting, markets will eagerly await the release of Retail Sales with expectations of 0.5% less than the previous at 1.4%.

• The Australian Dollar (AUD) slid on Thursday as the high yielding currency suffered on the back of further Yen unwinding. Overall the AUD traded with a low of 0.8284 and a high of 0.8392 before closing the day at 0.8346 in the New York session

• The Polish Zloty (PLN) was stable on Thursday with investors looking at global markets sentiment for fresh direction ahead of Fridays producer prices and industrial output data in Poland. The Warsaw bourse large cap index WIG20 jumped to a record high yesterday after Poland and Ukraine were chosen to co-host the 2012 European Championship soccer tournament.

• Gold (XAU) fell yesterday after hitting an 11 month high on the back of a broadly stronger dollar, and risk aversion following the Chinese markets volatility. Gold fell by US$5.00 an ounce to US$688.30.

TECHNICAL COMMENTARY

• Euro 1.3620

Initial support at 1.3556 (Apr 18 low) followed by 1.3480 (Apr 13 low). Initial resistance is now located at 1.3631 (Apr 20 trend high) followed by 1.3637 (High Close Dec 30, 2004)

• Yen 118.70

Initial support is located at 117.60 (Apr 18 low) followed by 117.52 (50% retracement of the 115.15 to 119.89 advance). Initial resistance is now at 119.04 (Apr 18 high) followed by 120.00 (Psychological round number resistance)

• Pound – 2.0035

Initial support at 1.9985 (Apr 19 low) followed by 1.9878 (Apr 17 low). Initial resistance is now at 2.0134 (Apr 18 trend high) followed by 2.0200 (Psychological Round Number)

• Australian Dollar – 0.8350

Initial support a 0.8278 (April 19 low) followed by 0.8233 (Apr 11 low). Initial resistance is now at 0.8396 (Apr 19 trend high) followed by 0.8431 (Dec 1988 former low)

• Gold – 684.60

Initial support at 679.15 (Apr 19 low) followed by 676.80 (Apr 13 low). Initial resistance is now at 692.00 (Apr 19 high) followed by 700.00 (Psychological round number)