Australian FOREX Daily Outlook 23/08/2007

Rebound in the equity markets minimizes volatility as carry trade resumes.

CURRENCY TRADING SUMMARY –23 AUGUST 2007 (00:30GMT)

• U.S. Dollar Trading (USD) eased across the board as equity markets moved higher overnight ensuring more composure. Markets stabilized after Sen. Christopher Dodd, chairman of the U.S. Senate Banking Committee, on Tuesday said Federal Reserve Chairman Ben Bernanke had told him the central bank will use “all available tools” necessary to quell recent volatility in financial markets sparked by the fallout of the U.S. mortgage crisis which has threatened to dry up key credit markets. Investors interpreted that as a sign that, while there may be no imminent cut in benchmark interest rates, the Fed would lower its key federal funds rate from 5.25 percent if need be. In U.S. share markets the NASDAQ was up 31.50 (1.25%) points whilst the Dow Jones was also up 145.27 points (1.11%). Crude oil fell by US$0.31 a barrel to US$69.29.

• The Euro (EUR) gained as traders revisited the possibility of a rate hike in the coming months. ECB said on Wednesday its governing council’s position on monetary policy has remained on a tightening bias, when Trichet said “strong vigilance” was needed to stem inflation risks, signaling a possible rate hike in September. Overall the EURUSD trade with a range of a low 1.3450 and a high of 1.3552 before closing the day at 1.3535 in the New York session.

• The Japanese Yen (JPY) extended its losses on Wednesday following the central bank of Europe intended to add 40 billion euros to the banking system to boost liquidity and steady financial markets. Higher U.S. stocks and a test of key technical resistance in the Euro against the Yen also accelerated the Japanese currency’s decline, analysts said. Overall the USDJPY traded with a range of a low 113.99 and a high of 115.47 before closing the day at 115.02 in the New York session. Looking ahead plenty of focus will surround the BoJ rate announcement accompanied by the Monthly Report.

• The Sterling (GBP) was up against the yen, dollar and Euro on Wednesday as high yielding currencies made a comeback, benefiting from calmer markets after suffering heavy losses since the start of the month. Overall the GBPUSD traded with a low of 1.9804 and a high of 1.9928 before closing the day at 1.9917

• The Australian Dollar (AUD) moved higher, as traders returned to the carry trade. Overall the AUDUSD traded with a low of 0.7972 and a high of 0.8071 before closing the day at 0.8055 in the New York session.

• Gold (XAU) was flat for most of the day trading between 655.10 and a high of 661.65.

TECHNICAL COMMENTARY

• Euro 1.3455

Initial support at 1.3360 (Aug 16 low) followed by 1.3305 (Jun 15 low). Initial resistance is now located at 1.3548 (Aug 17 high &amp 38.2% retracement of the 1.3853 to 1.3360) followed by 1.3628 (Aug 14 high).

• Yen 114.40

Initial support is located at 113.67 (Aug 20 low) followed by 111.60 (Aug 17 low). Initial resistance is now at 115.52 (Aug 21 high) followed by 116.40 (38.2% retracement of the 124.17 to 111.60 decline).

• Pound – 1.9825

Initial support at 1.9741 (Aug 21 low) followed by 1.9652 (Aug 17 low). Initial resistance is now at 1.9937(Aug 17 high) followed by 1.9974 (Aug 15 high)

• Australian Dollar – 0.8000

Initial support a 0.7955 (Aug 21 low) followed by 0.7891 (Aug 20 low). Initial resistance is now at 0.8095 (Aug 20 high) followed by 0.8133 (38.2% retracement of the 0.8875 to 0.7674 decline)

• Gold – 656.40

Initial support at 642.45 (Aug 16 low) followed by 640.00 (Jun 26 low). Initial resistance is now at 668.90 (Aug 16 high) followed by 676.80 (Aug 8 high)