Australian FOREX Weekly Outlook 05/04/2006

05/04/06

last week’s recap

The Euro closed last week at 1.2117 having started the week at 1.2035. USD/JPY closed last week at 117.68 having started the week at 117.44.The GBP closed last week at 1.7373 having started the week at 1.7431. The AUD closed last week at 0.7163 having started the week at 0.7103.

The Dollar lost ground against the major currencies during the week on the back of rumors that the White House is seeking a weaker dollar and possible central bank diversification away from US dollars, which would in turn impact in the huge US external deficits. The Euro strengthened during the week, underpinned by strong data and ahead of this week’s ECB interest rate decision. The Japanese yen gained after positive inflation and string labour market data that showed the Japanese economy is moving further out of deflation. The Japanese yen moved away from a 7-week low against the Euro as the data did little to shake expectations the Bank of Japan could raise interest rates by the third quarter. Sterling continued to fall against the Euro, reaching 8-month lows against the Euro in anticipation of further ECB rate hikes this week. The narrowing interest rate differentials continued to dictate the Aussie dollar’s fortunes, with the local unit hitting a fresh 18 month low of 0.7016 in the wake of the US Federal Reserve’s 15th consecutive rate hike.

The week ahead

The general impression lately is that the global economy has positive growth momentum and possibly accelerating growth momentum at that. This has been most obvious in the Eurozone. The data calendar in the coming week is a heavy one in all of the major economies, and promises to shed further light on the pace of growth.

In the States despite its lagging characteristics, non-farm payrolls is probably still the single most important data release in any month. The market expects March to have been another decent one for job creation (Friday). The non-manufacturing ISM has been at historically high levels over the past couple of years – giving a consistent picture of steady growth in the service sector. The market expects a small set-back in the March reading (Wednesday) given the index showed an unusually strong bounce in February. We will provide our previews of these data releases in the daily summary.

In the Eurozone the services PMI (Wednesday) is forecast to edge a bit higher. The harder data are due from Germany, in the form of manufacturing orders (Thursday) and industrial production (Friday). Manufacturing orders have been boosted by some large big ticket items but the surveys again suggest that the underlying positive strength could have further to go. Expectations about what the ECB is planning to do have become more aggressive recently – the market now anticipates that the next move will come at the May meeting. Past experience would suggest that if we are to get a move in May, then there should be some heavy hints at the next press conference, after the upcoming ECB council meeting (Thursday). The market will be paying close attention to the use of the word “vigilance” by Trichet. This would be interpreted by the market as the Council is ready to move. In the UK the MPC also meets to review its stance on monetary policy but the overwhelming consensus view is that a “no – change” announcement is due (Thursday). Industrial production has risen for the past three months however the market is forecasting that the positive run ended in February (Wednesday). We will provide our previews and reviews of these data releases in the daily summary.

In Japan the domestic leading indicator from the Cabinet office in Japan is expected to confirm a continuation of the uptrend (Thursday). As always, the market will be monitoring closely the more comprehensive set of leading indicators from the OECD (Friday). We will provide our previews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro 1.2270

Initial support at 1.2119 (Apr 4 low) followed by 1.2031 (Apr 3 low). Initial resistance is now located at 1.2324 (Jan 25 high) followed by 1.2416 (Sept 12, 2005 high).

• Yen 116.90

Initial support is located at 116.25 (Mar 28 low) followed by 115.45 (Mar 1 reaction low). Initial resistance is now at 118.82 (Apr 3 high) followed by 119.41 (Feb 2 high).

• Pound – 1.7580

Initial support at 1.7369 (Apr 4 low) followed by 1.7229 (Mar 10 reaction low). Initial resistance is now at 1.7597 (Mar 16 reaction high) followed by 1.7626 (Mar 6 reaction high).

• Aussie – 0.7230

Initial support at 0.7114 (Apr 4 low) followed by 0.7058 (Mar 30 low). Initial resistance is now at 0.7303 (38.2% of 0.7590 – 0.7015 decline.) followed by 0.7370 (61.8% retracement of the 0.7590 to 0.7015 decline).