Australian FOREX Daily Outlook 21/02/2008

Oil and XAU trade at record highs, on a rise in US CPI figures. BoE minutes on the “dovish” tone.

CURRENCY TRADING SUMMARY – 21 FEBRUARY 2008 (00:30GMT)

·U.S. Dollar Trading (USD) rallied broadly versus a number of majors as data showed that inflation had risen, prompting investors to trim bets the Fed will avoid slashing rates in their next gathering. Inflation increased 4.3 % in the 12 months through to January, on higher food prices. Core prices which exclude food and energy costs, also rose 0.3 % in January after gaining 0.2 % in December, which was the strongest monthly increase since June 2006. Housing starts provided further boost to the dollar rising to 1.012 mln a slight rebound from the 1.004 mln in December. In U.S. share markets the NASDAQ was up by 50.92 points (+0.56%) whilst the Dow Jones was also up by 90.04 points (+0.73%). Crude oil rallied by US$0.90 a barrel to a record high of US$101.00. The Philly Fed survey is scheduled for release on Thursday as the only key piece of economic data.

·The Euro (EUR) weakened on the back of buoyant CPI data out of the world’s largest economy. The Euro was further pressured on comment made German politician, Juergen Ruettger that the country’s regional state-backed landesbanks are in crisis. Overall the EURUSD traded with a low of 1.4614 and a high of 1.4731 before closing the day at 1.4715 in the New York session.

·The Japanese Yen (JPY) weakened against the dollar after stronger than expected US CPI data. With encouraging CPI data, carry trade advanced to the forefront, strengthening the greenback against the yen. In other news the BoJ minutes were made public on Wednesday, with little surprises, confirming a 9 to 0 vote as concerns for low inflationary pressures persist. The UDJPY traded with a low of 107.48 and a high of 108.25 before closing the day at 108.17 in the New York session.

·The Sterling (GBP) minutes from the Bank of England’s February policy meeting was released, which added further pressure to the pound. The minute’s revealed one Monetary Policy Committee member had aggressively called for a half-point rate cut. Although an 8-1 vote to lower the interest rate to 5.25% was revealed, David Blanchflower called for a half-point reduction. Overall the GBPUSD traded with a low of 1.9363 and a high of 1.9502 before closing the day at 1.9431 in the New York session.

·The Australian Dollar (AUD) wage price index was up 4.2 % for the year, and rose 1.1 % quarter-on-quarter on consensus adding to the argument for a hike in rates come March. However the Aussie dollar suffered on the back of Asian stocks heading lower. Overall the AUDUSD traded with a low of 0.9113 and high of 0.9212 before closing the day 0.9189 in the New York session.

·Gold (XAU) rose to an all time high as crude oil surged to a record $100.40 a barrel and U.S. inflation quickened last month, boosting the appeal of the precious metal as a hedge against rising consumer prices. XAU traded higher by US$9.50 an ounce to US$939.50.

TECHNICAL COMMENTARY

·Euro – 1.4720

Initial support at 1.4611 (Feb 14 low) followed by 1.4549 (Feb 12 low). Initial resistance is now located at 1.4759 (Feb 15 low) followed by 1.4834 (61.8% retracement of the 1.4956 to 1.4440 decline).

·Yen – 108.05

Initial support is located at 107.22 (Feb 15 low) followed by 106.35 (Feb 11 low). Initial resistance is now at 108.67 (38.2% retracement of the 114.66 to 104.97 decline) followed by 109.82 (50% retracement of the 114.66 to 104.97 decline)

·Pound – 1.9425

Initial support at 1.9363 (Feb 12 low) followed by 1.9338 (Feb 7 low). Initial resistance is now at 1.9542 (Feb 14 high) followed by 1.9738 (Feb 5 high)

·Australian Dollar – 0.9195

Initial support a 0.9005 (Feb 15 low) followed by 0.8954 (Feb 14 low). Initial resistance is now at 0.9239 (76.4% retracement of 0.9400 to 0.8513) followed by 0.9331 (Nov 9 high)

·Gold – 940.00

Initial support at 896.50 (Feb 13 low) followed by 885.0 (Feb 7 low). Initial resistance is now at 927.31 (Feb 11 high) followed by 936.80 (Feb 1 trend high)