Australian FOREX Daily Outlook 21/02/2006

MARKET SUMMARY –21FEB06 (05:00GMT)

• The Dollar traded sideways against the major currencies in a lackluster overnight session with the US closed due to Presidents Day. Crude oil prices rose by US$1.63 to US$61.53 a barrel. Looking ahead and the minutes from the last FOMC are to be released later today in the States. However, with a new Chairman – it is unlikely to receive as much attention as the previous minutes. A hawkish tone will likely prevail in the meeting minutes, if recent Fed rhetoric is anything to go by. Inflation risks are likely to be cited as the key priority. At the same time the Fed is likely to convey the message that it believes it is near the end of its tightening path.

• The Euro traded in a range of 1.1931 to 1.1970, closing near its lows in the New York session. ECB President Jean-Claude Trichet gave testimony to the European Parliament overnight, noting that the financial markets were “perfectly sensible” in expecting the central bank to lift interest rates at the next meeting on March 2. Trichet dismissed the slowdown in European economic growth in the December quarter to 0.3% as “short-term volatility.”

• The Japanese yen traded in a narrow range of 118.06 to 118.30, closing near its highs in the New York session.

• The Sterling traded in a range of 1.7405 to 1.7463, before closing at 1.7440 in the New York session. Yesterday, UK Rightmove house prices rose a solid 2.7% in February, bringing annual house price inflation to 4.0%. The market had expected a small monthly rise of 0.3%. Rising house and equity prices are providing a source of support for UK consumers, against the backdrop of a relatively soft labour market.

• The Aussie traded in a tight range of 0.7398 to 0.7418, before closing at 0.7410 in the New York session.

• Gold rose to a ten-day high in overnight trade, supported by higher oil prices and a softer greenback. Gold ended near US$555.60 an ounce.

TECHNICAL COMMENTARY

• Euro 1.1930

Initial support at 1.1860 (Feb 14 low) followed by 1.1800 (76.4% retracement of 1.1638 to 1.2324). Initial resistance is now located at 1.2027 (Feb 10 high) followed by 1.2047 (Feb 6 high).

• Yen 118.50

Initial support is located at 117.32 (Feb 17 low) followed by 116.75 (Feb 15 low). Initial resistance is now at 118.87 (Feb 17 high) followed by 119.41 (Feb 3 high).

• Pound – 1.7430

Initial support at 1.7329 (Feb 17 low) followed by 1.7278 (Feb 14 low). Initial resistance is now at 1.7486 (Feb 15 high) followed by 1.7577 (Feb 10 high).

• Aussie – 0.7385

Initial support at 0.7356 (Feb 14 low) followed by 0.7317 (76.4% retracement of the 0.7233 to 0.7590 advance). Initial resistance at 0.7442 (Feb 15 high) followed by 0.7501 (Feb 6 high).