Australian FOREX Daily Outlook 24/01/2006

MARKET SUMMARY – 24/01/06(03.00GMT)

• The Dollar continued to weaken overnight against the major currencies with the exception of Aussie which was relatively stable. The primary catalyst for the dollar weakness in the last 48 hours is a pronounced shift towards more risk averse behavior on the part of market participants globally, on increased geo-political risks. Concern over Iran’s nuclear programme coupled with developments in Nigeria contributed to higher oil prices and consequently weaker equity markets. Compounding the dollar difficulties overnight is a market perception that Fed officials are once again focusing closely on the risks from the current account balance. New York Fed President Geithner highlighted threats to the global economy from the growing US trade and budget deficits. In other markets, US stocks stabilized overnight with the Dow Jones finishing up 21 and the NASDAQ finished flat. Crude oil feel overnight after Saudi Arabia vowed to pump more oil if needed and said OPEC will not cut production as its meeting next week. Crude oil fell by US38c to US$68.10 a barrel. On the data front, the US leading indicator rose 0.1% in January compared with market expectations of a 0.2% rise. Annual growth in the leading indicator fell to 1.2% from 1.8%. Lower annual growth in the indicator points to slower US GDP growth ahead.

• The Euro continued to move higher overnight from 1.2240 to a 4 month high of 1.2310, before closing in New York near its highs.Apart from benefiting from geopolitical concerns, the euro was also assisted by comments by ECB chief economist Otmar Issing has stated that inflation still posed a risk even if prices had retreated a little recently. “Inflation has come down, it’s true, but in all likelihood it will rise again,” he said, focusing on the risk that high oil prices cause a knock-on effect that amplifies inflation. The upshot is that there may be upside to the ECB’s repo rate of 2.25%.

• The Japanese yen also strengthened against the dollar from JPY114.65 per US dollar to JPY114.17, before closing in New York at JPY114.45. This morning in Japan, the tertiary index for November rose by just 0.1% m/m, lower than market expectations of 0.5% m/m.

• The Sterling rallied from 1.7810 to a high of 1.7880, before closing near its highs in New York.Sterling hit three month highs and with the lack of domestic data in the UK it tracked the euro.

• The Aussie was content to keep a tight range of 0.7517 to 0.7543 before closing in New York at 0.7530. Gold lifted overnight as investors turned to the yellow metal as a ‘safe haven’ and due to the weaker dollar. Gold rose by US$4.70 to US$558.70.

TECHNICAL COMMENTARY

• Euro – 1.2285

Initial support at 1.2181 (Former resistance from Jan 6)) followed by secondary support at 1.2137 (Jan 23 low). Initial resistance is now located at 1.2365 (76.4% retracement of the 1.2590 to 1.1638 decline) followed by 1.2590 (Sep 2, 2005 high).

• Yen – 114.75

Initial support is located at 113.99 (Trendline support) followed by 113.79 (Jan 16 low). Initial resistance is located at 115.91 (Jan 17 high &amp trendline resistance area) followed by 116.35 (61.8% of 118.16-113.41 decline and near Jan 5 high).

• Pound – 1.7840

Initial support is located at 1.7702 (Jan 18 low) followed by 1.7523 (Jan 11 low). Initial resistance is located at 1.7901 (Oct 27 high) followed by 1.7947 (61.8% retracement of the 1.8501 – 1.7052 decline).

• Aussie – 0.7510

Initial resistance is located at 0.7577 (Jan 18 high) followed by 0.7600 (Trendline resistance). Initial support is located at 0.7446 (38.2% retracement of the 0.7235-0.7577 climb) followed by 0.7406 (50.0% retracement of the 0.7235-0.7577 high).