Australian FOREX Weekly Outlook 03/05/2006

03/05/06

last week’s recap

The Dollar was weaker versus the major currencies last week and tumbled to fresh 7-month lows against the Euro. This was mainly due to Fed Chairman Ben Bernanke’s testimony to Congress. Chairman Bernanke raised the likelihood of a pause in the tightening campaign after one more 25bp rate hike on May 10 is his testimony to the Joint Economic Committee. The dollar ignored strong economic adapt out of the States and continued to weaken against majors later in the week. The Euro rallied strongly against the dollar, buoyed by Bernanke’s comments and stronger than expected economic data out of Germany. The German IFO survey was firmer than expected, rising to 105.9 from 105.4 and German Gfk Consumer Confidence was at its highest level since November 2001, printing at 5.5 against forecasts of 5.1. Further benefiting the Euro was a comment by a European Central Bank board member indicating that the pace of monetary tightening could increase. The Japanese yen also strengthened against the dollar mainly due to calls by the G7 ministers for Yuan reform. This saw traders buy the Japanese yen as a substitute for future Yuan moves. The Sterling also rallied strongly against the dollar last week. The Aussie continued to gain against the dollar due to strong rallies in commodities and base metals.

The week ahead

The highlight of the coming week is the US non-farm payrolls. The market is expecting a slight moderation in employment growth but not enough to stop the Fed from raising rates in May. The market is not expecting a May tightening from the ECB in may but expects Trichet to use the press conference to indicate a hike in June is likely.

In the States the obvious calendar highlight of the coming week is the US non-farm payrolls on Friday. Labour market conditions are a key influence upon consumer confidence, with the jobs situation supporting sentiment in the last reading of the conference board indicator, and hence spending. The ISM non-manufacturing index (Wednesday) is likely to reflect a moderation in activity in April. We will provide our previews of these data releases in the daily summary.

In the Eurozone recent survey data has continued to prove remarkably strong, with the IFO defying expectations of a correction lower in April to post further gains. The Eurozone retail sales (Thursday) is expected to decline following a reported 2.7% MoM drop in German retail sales. The Eurozone unemployment rate (Wednesday) is unlikely to have improved in March. The last ECB press conference delivered a surprise when Trichet announced that a rate hike in May was off the cards. The market’s expects Trichet to use this month’s press conference to reaffirm this notion, indicating a high probability of a June hike. In the UK the key release will be mortgage approvals (Thursday). The market is not expecting any change from the BoE Monetary Policy meeting in Thursday. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro 1.2650

Initial support at 1.2520 (Apr 28 low) followed by 1.2403 (Apr 27 low). Initial resistance is now located at 1.2692 (May 1 high) followed by 1.2731 (Former support from Feb 8, 2005).

• Yen 113.20

Initial support is located at 112.33 (May 1 low) followed by 111.54 (50% retracement of the 101.67 to 121.41 advance). Initial resistance is now at 113.86 (May 1 high) followed by 114.49 (Apr 28 corrective high).

• Pound – 1.8420

Initial support at 1.8205 (May 1 low) followed by 1.8000 (Apr 28 low). Initial resistance is now at 1.8501 (Sep 5, 2005 high) followed by 1.8595 (61.8% retracement of the 1.9551 to 1.7048 decline).

• Aussie – 0.7670

Initial support at 0.7535 (Apr 28 low) followed by 0.7492 (Apr 27 low). Initial resistance is now at 0.7760 (76.4% retracement of the 0.7990 to 0.7015 decline) followed by 0.8000 (Psychological level).