Australian FOREX Daily Outlook 30/01/2006

MARKET SUMMARY – 30JAN06 (05:00GMT)

• The Dollar strengthened against all the majors on Friday, despite a weaker than expected Q4 GDP. GDP rose by just 1.1% q/q annualized, much lower than market expectations of 2.8% q/q. The point to note is that the slowing in growth was exacerbated by large declines in auto production and defence spending, which are unlikely to be repeated in Q1. More importantly for the dollar however, was the pickup in the GDP deflator, which rose by 3%, led by strength in structures components. In addition the core PCE deflator rose by a strong 2.2%, up from the 1.4% recorded in Q3. The dollar also received support from US treasury Secretary John Snow who downplayed the significance of the GDP report, saying that the data did not accurately reflect the underlying strength of the US economy. In other markets, the Treasury market was flat while equity markets strengthened. The Dow Jones closed up 98 pts while the NASDAQ was up 21.

• The Euro initially traded higher to 1.2235 in the wake of the US GDP report but was unable to hold onto its gains as it traded back down to 1.2105. The Euro closed near its lows in New York. Eurozone M3 growth slowed to 7.3% rate in December, below the 7.6% rate in November and the 7.5% consensus. Analysts note that the detail of the report shows that loan-growth to non-financial corporates actually accelerated and therefore this release does not really damage the case for ECB tightening.

• The Japanese yen continued to weaken against the dollar to a 3 week low. The Japanese yen fell from JPY116.11 per US dollar to JPY117.41, before closing near its lows. Today in Japan, industrial production came out softer than expected. Industrial production for December rose by 1.4% m/m against market expectations of 1.8% m/m. The data had little impact on the currency.

• The Sterling traded down from 1.7878 to 1.7667, before closing in New York near its lows. The release of strong UK mortgage approval data earlier on Friday had little impact on sterling with investors waiting for the release of U.S. growth data for clues on Federal Reserve’s monetary policy. Data from the British Bankers’ Association showed mortgage approvals for home purchases rose 28 percent on the year in December but weakened significantly from the prior month. The market will focus on more housing data today, with the release of the nationwide house prices. The market median is for 0.5% m/m taking annual rate to 3.3%.

• The Aussie continued to trade within a narrow range of 0.7495 to 0.7544, before closing near its lows in New York. The Aussie suffered on the back of dollar strength across the board, but benefited from strong metals prices which explain why it remains range bound.

TECHNICAL COMMENTARY

• Euro 1.2100

Initial support at 1.2085 (Jan 27 low) followed by 1.2040 (Jan 20 low). Initial resistance is now located at 1.2179 (61.8% retracement of the decline from 1.2237) followed by 1.2237 (Jan 27 reaction high).

• Yen 117.30

Initial support is located at 116.12 (Jan 27 reaction low) followed by 115.47 (Reaction low from low Jan 26). Initial resistance is now at 117.48 (Jan 27 high) followed by 118.18 (Dec 29 high).

• Pound – 1.7690

Initial support at 1.7667 (Jan 27 low) followed by 1.7624 (76.4% of 1.7527 to 1.7937). Initial resistance is now at 1.7834 (61.8% retracement of the decline from 1.7937) followed by 1.7880 (reaction high from Jan 27).

• Aussie – 0.7500

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).