Australian FOREX Daily Outlook 25/01/2006

MARKET SUMMARY – 25/01/06(03.00GMT)

• The Dollar recovered some lost ground overnight in a lackluster session to finish slightly stronger against the major currencies. The move was largely due to profit-take as risk aversion trades appear to have moderated a little. However, geo-political risks are unlikely to fade quickly from investor’s minds and therefore market is hesitant to enter long dollar positions. In other markets, US shares rose overnight, aided by solid earnings from blue-chip companies United Technologies and McDonald’s Corp. The Dow Jones closed up 23pts while the NASDAQ was up 16pts. Crude oil prices eased back overnight on expectations that weekly data would show an increase in US crude supplies. However, renewed violence in Nigeria limited the fall to $US1.04 taking oil to US$67.06 a barrel. On the data front, the US Richmond Fed composite manufacturing index eased to -4 from -2 in December. Looking ahead, existing home sales is due out in the States later today. The market expects a further fall in December, following a 1.7% annualized drop recorded in November. Another decline would be consistent with the message of a softening housing market.

• The Euro traded in a range of 1.2260 to 1.2308, before closing in New York at 1.2275. Looking ahead and the Eurozone have a busy day in regards to data releases. The first release will be the French business climate index (INSEE) which is forecast to rise to 103.0 in January from 102.0 last month. This will be followed by Italian consumer confidence which is forecast to have remained steady at 108.2 in January, unchanged from last month. Finally, the big one will be German business sentiment (IFO) which is forecast to rise to a fresh five-year high in January as confidence in the country’s recovery gathers pace. The IFO research institute’s business climate index, based on a survey of some 7,000 companies, is seen climbing to 99.8 in January from 99.6 in December.

• The Japanese yen traded in a range of 114.40 to 114.74, before closing in New York at its highs. The Japanese yen lost ground against the Dollar in Asia today as it traded to JPY115.25 per US dollar. Yesterday in Japan, the all industries index, which includes the tertiary sector and industrial output, rose 0.3% in November from the previous month, compared with a forecast 0.5% rise.

• The Sterling traded in a 1.7805 to 1.7897 range, before closing in New York at 1.7845. In the UK yesterday, the CBI January industrial trends orders balance fell to -28, below the -20 consensus and last month’s -22. This is the lowest reading since August, and the forward-looking expectations index fell as well. In the UK later today the Bank of England publishes minutes of its January 11-12 Monetary Policy Committee meeting, which concluded with a decision to leave rates unchanged. MPC member Stephen Nickell voted for a 25 basis point cut at the December meeting and analysts expect the January minutes to show a similar 8-1 vote in favor of steady rates.

• The Aussie traded in a range of 0.7488 to 0.7517, before closing in New York near its highs. Today in Australia, Q4 CPI rose 0.5%, up 2.8% on the year.The median market expectation was for CPI to rise 0.6 percent in the fourth quarter, for a rise of 2.9 percent on the year. Gold took a breather overnight as investor’s awaited fresh news to provide direction. Gold eased US60c to US$558.10 an ounce.

TECHNICAL COMMENTARY

• Euro – 1.2270

Initial support at 1.2221 (Jan 23 intraday corrective low) followed by 1.2181 (Former resistance from Jan 6). Initial resistance is now located at 1.2323 (Jan 24 high) followed by 1.2365 (76.4% retracement of the 1.2590 to 1.1638 decline).

• Yen – 115.15

Initial support is located at 114.05 (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 – 1.7830

Initial support is located at 1.7702 (Jan 18 low) followed by 1.7668 (61.8% retracement of gains from 1.7527). 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).