Australian FOREX Weekly Outlook 12/02/2007

12/02/07

last week’s currency trading review

The Dollar experienced a light data week with plenty of focus surrounding the G7 summit held on the 9^th &amp 10^th of February in Essen, Germany. In US specific data Non-Manufacturing ISM was released on Monday with the figure coming in at 59 higher than the forecasted 57 suggesting that the US economy was stable in contrast to reports of Fed officials succumbing to inflationary pressures, hence the Federal Reserve is most likely to keep interest rates on hold in the immediate future. The Euro experienced a busier week with Retail sales being a key figure on Tuesday. Market expectations were at 1.1% with the actual figure coming in at 0.3% significantly lower however this did little to shift the Euro. In other key events, the ECB announced interest rates will remain unchanged at 3.5%. Although this coincided with market expectations, it was accompanying statements made by President Trichet that generated most interest. With markets awareness focused on the usage of ‘vigilance’, Trichet press conference statements used the word ‘strong vigilance’, mentioned more than once, causing markets to factor in two possible rate hikes, as a result significant Euro buying was an outcome. In other news, the G7 summit held key importance to the Eurozone throughout the week as concerns arose regarding the export industry. With suspicions that Europe will stand alone on the topic, post commentary by German Finance Minister Steinbrueck indicated that Yen weakness was no longer hurting their economy. The Euro closed last week at 1.3005 having opened the week at 1.2928. The Japanese Yen saw a very light data week yet continued to remain in the spotlight prior to the meeting of the seven rich nations. Following US Treasury Secretary Paulson stating the yen weakness coincided with market fundamentals. It was statements made by the BoJ Haru that the decline in the Yen was in fact good for the Japanese economy which caused most interest leading to further selling off of the Yen late in the week, as investors were convinced that it would not be a key topic of discussion at the G7. The JPY closed last week at 121.65 before opening the week at 120.33. The GBP experienced a slide on Thursday following the BoE decision to keep interest rates on hold. Although this was very much in line with market expectations, some investors had not ruled out the possibility of the BoE to surprise again following the January rate hike. Furthermore a higher than expected trade deficit released on Friday ensured that the Sterling continued to be sold off. Economists had predicted that the figure would be in the vicinity of -6.9 bln, with the actual number in at -7.142 bln. The sterling closed last week at 1.9505 having opened the week at 1.9596. The AUD experienced a stable week with the RBA keeping interest rates unchanged as expected. Yet it was a better number for Unemployment of 4.5% (forecasted 4.6%) resulted in AUD strengthening on Thursday. Monday however saw a poor figure in the form of Retail Sales at 0.3% rather than the expected 0.5%. The AUD closed last week at 0.7767 having started the week at 0.7761.

The forex trading week preview

In the States a busy week is expected in terms of economic data. Beginning on Tuesday, the trade balance is set for release. Wednesday the data increases with the release of Retail Sales whilst the Federal Reserve Chairman Bernanke scheduled to testify before the senate. Thursday is an extremely busy data day with Jobless Claims, Empire State manufacturing survey, TIC flows, Industrial production and the Philadelphia Fed survey all being made public. Friday the trend continues with further key economic data due for release as Core PPI, Housing Starts, and the Michigan Sentiment all due for release. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone Tuesday proves to be the most eventful day with GDP, German ZEW Survey (Feb) and Industrial Production for the month of December. The President of the ECB Trichet is scheduled to speak with the focus being on globalization (Thursday). Friday Eurozone Trade Balance is due for release. In the UK also sees some key data release with CPI for the month of January out on Tuesday. Wednesday the trend is set to continue with the release of Jobless Claims and the BoE Quarterly Inflation Report. Retail Sales for the month of January is also scheduled for release on Thursday. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the release of the Current Account Surplus for the month of December is out Tuesday. Wednesday finds the Real GDP for the fourth quarter. We will provide our previews and reviews of these data releases in the daily summary.

In Australia a relatively quiet data week is expected with the RBA Policy Statements on Monday. Merchandise Imports for the month of January out on Friday. We will provide our previews and reviews of these data releases in the daily summary.

KEY WEEKLY PIVOT LEVELS

• Euro 1.3020

Initial support at 1.2968 (Feb 7 low) followed by 1.2911 (Feb 6 low). Initial resistance is now located at 1.3047 (Feb 9 high) followed by 1.3074 (Feb 2 high)

• Yen 121.90

Initial support is located at 120.99 (Feb 9 low) followed by 120.57 (Feb 8 low). Initial resistance is now at 122.20 (Jan 29 high) followed by 122.38 (61.8% retracement of the 135.18 to 101.67 decline).

• Pound – 1.9535

Initial support at 1.9457 (Feb 9 low) followed by 1.9426 (Jan 12 low). Initial resistance is now at 1.9604 (Feb 9 high) followed by 1.9751 (61.8% of 1.9917-1.9482, 1.9749 is Feb 2 high).

• Australian Dollar – 0.7775

Initial support at 0.7746 (61.8% retracement of the 0.7697 to 0.7826 advance) followed by 0.7715 (Feb 2 corrective low). Initial resistance is now at 0.7826 (Feb 9 high) followed by 0.7847 (61.8% retracement of the 0.7490 to 0.7697decline).

• Gold – 668.50

Initial support at 648.00 (Feb 8 low) followed by 643.50 (Feb 2 low). Initial resistance is now at 668.81 (Feb 9 high) followed by 676.35 (Jul 17 reaction high)