Australian FOREX Weekly Outlook 10/01/2006

Comment:

The Dollar was weaker versus the major currencies in the first week of trading for 2006. The Euro closed last week at 1.2150 having started the week at 1.1900. US$/JPY closed last week at 114.60 having started the week at 117.80. The GBP closed last week at 1.7700 having started the week at 1.7240. The A$ closed last week at 0.7530 having started the week at 0.7330.

last week’s recap

The Dollar weakened early in the week versus the major currencies on the back of weaker than expected economic data and the FOMC minutes, which once again signaled that the rate hiking cycle is coming to an end. Eurozone data came out on the firm side of expectations right through the week however this had little impact on the Euro as the move higher was sparked by the weak dollar. The Japanese yen strengthened late in the week on the back of disappointing payroll data out of the States. The Aussie rallied strongly right through the week, assisted by a weak dollar and a rally in base metal prices.

The week ahead

The data due out early in the New Year continues to suggest a positive slant with US retail sales expected to have benefited from strong car sales. The German ZEW survey is likely to have improved again, and French industrial product is also forecast to have bounced.

In the States despite all the problems that were thrown at it, the US economy appeared to end 2005 in good shape and the anticipated slow down failed to materialize. The main release in the US promises to be the December report for retail sales (Friday). US producer prices (Friday) are like to be negatively affected by the timing of the survey. The point when the survey was conducted (always the Tuesday of the week containing the 13^th of the month) coincided with the peak in wholesale gasoline and crude oil prices. Finally in the US watch out for the monthly trade balance (Thursday). This surprised a month ago when the deficit was a good deal worse than expected. We will provide our previews of these data releases in the daily summary.

In the Eurozone one of the really surprising data releases of the past month was the German ZEW survey. Near-term, this improvement may have some momentum and the market expects another (more modest) gain in January (Tuesday). The pace of growth of industrial production in France has – perhaps surprisingly – tended to lag recently and could be due for a bit of a bounce on Tuesday. The ECB is not expected to raise rates at the upcoming meeting (Thursday), but the press conference will again be examined for any hints about future moves. In the UK the market expects levels of industrial production and manufacturing output to recover slightly in November (Thursday). The market will also focus on the trade balance (Wednesday) which has improved over the past couple of months. The Bank of England (BOE) will decide its stance on monetary policy (Thursday) with the market expecting no movement. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the data highlight is likely to be the ever volatile private machinery orders (Friday). In Australia the key releases are the trade balance (Tuesday) and unemployment (Thursday). We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro – 1.2140

The Euro has started to retrace and is targeting initial support at 1.2005 (Jan 4 low).This is followed by secondary support at 1.1931 (former resistance from Dec 28). Initial resistance now located at 1.2181 (Jan 6 high) followed by 1.2208 (Oct 6 high).

• Yen – 114.00

The breach of the formerly supportive 115.52 level from Dec 19 establishes a pattern of lower lows and lower highs and reinforces the down-trend from Dec 5”s 121.41 trend top. The support now converts into initial resistance at 115.52 (former support from Dec 19) followed by 116.30 (Jan 6 high). Initial support is located at 113.73 (former resistance from Jul 20) followed by 113.53 (61.8% retracement of the 108.76 to 121.41 advance).

• Pound – 1.7705

Initial support is located at 1.7619 (former resistance from Jan 4) followed by 1.7513 (Jan 6 low). Initial resistance is located at 1.7810 (Dec 14 high) followed by 1.7904 (Oct 27 high).

• Aussie – 0.7525

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7444 (Jan 5 low) followed by 0.7398 (Jan 4 low).