Australian FOREX Daily Outlook 27/01/2006

MARKET SUMMARY –THU 27JAN06 (05:00GMT)

• The Dollar continued to make gains against major currencies overnight, following stronger than expected US durable goods data. The market had expected a rise of 1.0% with the result coming in at 1.3%. Annual growth now stands at an extremely high 12.7%. The strength was broad based and reinforces that the corporate sector is exceptionally strong and set to make a solid contribution to US economic growth this year. In other data, initial jobless claims were 283k in the week to January 21, lower than the 300k expected. In other markets, US treasuries fell overnight as the durable goods data fuelled expectations that the Federal Reserve will raise interest rates in March as well as January. US sharemarkets all rallied overnight, following better than expected earnings from heavy equipment maker Caterpillar. The rally was rather impressive given the General Motors stock price was down 5%. The Dow Jones closed up 100 pts while the NASDAQ was up 22. Crude oil prices rose overnight on continuing worries about the security of world oil supplies. Crude oil rose by US41c to US$66.26 a barrel. Looking ahead and the first snapshot of GDP for the December Qtr 2005 are due out in the States later today. After strong GDP growth of 4.1% in Q3 2005, the market is looking for a slower rate of growth of 2.9%.

• The Euro traded down from 1.2269 to 1.2200 after the US data and closed near its lows in New York.In the Eurozone later today, the market will focus on M3 money supply and GFK consumer confidence in Germany.

• The Japanese yen fell from JPY115.49 per US dollar to JPY116.53, before closing near its highs in New York. Today in Japan, Tokyo CPI for January and nationwide CPI for December were released. Nationwide core CPI rose by 0.1% y/y, which was inline with market consensus and unchanged from the previous month. Of greater interest to the market was the more timely CPI data for the Tokyo area, which jumped by 0.5% m/m and 0.2% y/y. The data basically backs the BOJ view that Japan is exiting deflation.

• The Sterling fell from 1.7890 to 1.7777, before closing in New York at 1.7800. The new MPC member John Grieve testified to parliament overnight. The newswires made much of his comment about not wishing to be labeled as a hawk or a dove and the view amongst analysts is that he will not be as hawkish as his predecessor Andrew Large.

• The Aussie traded down from 0.7559 to 0.7510, before closing near its lows in New York. Gold fell overnight following speculative fund selling. Gold eased by US$2.60 to US$559.90 an ounce.

TECHNICAL COMMENTARY

• Euro 1.2210

Initial support at 1.2181 (Former resistance from Jan 6) followed by 1.2148 (61.8% retracement of 1.2040 to 1.2324). Initial resistance is now located at 1.2324 (Jan 25 high) followed by 1.2365 (76.4% retracement of the 1.2590 to 1.1638 decline)

• Yen 116.25

Initial support is located at 115.47 (Reaction low from Jan 26) followed by 114.63 (Jan 25 reaction low). Initial resistance is now at 116.58 (Jan 26 high so far) followed by 117.05 (76.4% retracement of the 118.18 – 113.41 decline).

• Pound – 1.7810

Initial support at 1.7747 (Jan 23 low) followed by 1.7702 (Jan 18 high). Initial resistance is now at 1.7947 (61.8% retracement of the 1.8501 – 1.7052 decline) followed by 1.8159 (76.4% retracement of the 1.8501 – 1.7052 decline).

• Aussie – 0.7515

Initial support at 0.7446 (Jan 19 low and 38.2% of the 0.7235 – 0.7577 climb) followed by 0.7366 (61.8% retracement of the 0.7235 to 0.7577 climb). Initial resistance at 0.7577 (Jan 18 high) followed by 0.7600 (trendline resistance).