Australian FOREX Weekly Outlook 12/09/2006

12/09/06

last week’s currency trading review

The Dollar was stronger against all major currencies with the exception of the Japanese yen as hawkish comments by a Fed official suggested that the Fed may not be done raising rates. This week saw little in the way of data releases and so the market focused more on comments by officials. The Euro suffered against both the dollar and the Japanese yen as comments by German Deputy Finance Minister Thomas Mirrow hinted that the focus of the G7 meeting later in September will be on Yen weakness. The Euro closed last week at 1.2675 having started the week at 1.2835. The Japanese yen was steady against the dollar but a good deal stronger verses the other major currencies following the comments by Mirrow. USD/JPY closed last week at 116.86 having started the week at 117.10. The Sterling was also sold off heavily against the dollar as domestic data came in softer than expected. The GBP closed last week at 1.8659 having started the week at 1.9060. The Australian dollar came under pressure following weaker GDP and employment figures. The A$ closed last week at 0.7569 having started the week at 0.7642.

The forex trading week preview

There is quite a comprehensive range of inflation data out in the coming week. Analysts are expecting benign reports out of the US, the UK and the Eurozone. This will be largely due to the decline in oil prices through August.

In the States the drop in oil prices is expected to have had some impact on the August US CPI data (Friday) although the decline at the wholesale level did not get passed through fully into retail prices during the month. The drop in petrol prices is expected to have a negative impact on overall retail sales (Thursday). The other negative for sales on the month was the reported decline in car sales. On the flip side, the drop in petrol prices could help consumer sentiment and the provisional reading from the University of Michigan for September (Friday) is forecast to have nudged slightly higher. The slowdown in the pace of US industrial production is expected to have continued in August (Friday). A more forward-looking view on the industrial sector will come from the “Empire State” survey from the New York Fed (Friday). Finally, the trade balance for July (Tuesday) is expected to have deteriorated. We will provide our previews of these data releases in the daily summary.

In the Eurozone the data calendar is a light one. The final inflation estimate for August (Friday) is expected to confirm the previously-released flash estimate. In the UK retail prices (Tuesday) are forecast to have edged higher on the month. Unemployment in the UK has been rising since the spring of last year and another modest gain is expected for August (Wednesday). UK retail sales surprised on the downside in July, however it seems unlikely that this represented any deterioration in the trend. The August data may give a better guide to the underlying position (Wednesday). We will provide our previews and reviews of these data releases in the daily summary.

In Japan a decline in the tertiary index (Friday) is expected. The Minutes of the Policy Board meeting of August 11 (Wednesday) will be read with interest given the market is still very uncertain about when the next interest rate move. We will provide our previews and reviews of these data releases in the daily summary

Finally, the market will pay close attention to the upcoming G7 meeting to be held in Singapore. The key for currency markets will be whether China and Japan will be mentioned in regards to the weakness in their respective currencies contributing to global imbalances.

Key Weekly Pivot levels

• Euro 1.2705

Initial support at 1.2641 (61.8% retracement of the 1.2456 to 1.2941 advance) followed by 1.257 (76.4% retracement of the 1.2456 to 1.2941 advance). Initial resistance is now located at 1.274 (Sep 11 high) followed by 1.2836 (Sep 6 high).

• Yen 116.75

Initial support is located at 116.6 (Sep 11 low) followed by 116.1 (Sep 8 low). Initial resistance is now at 117.89 (Jul 19 reaction high) followed by 118.9 (Apr 11 reaction high).

• Pound – 1.8655

Initial support at 1.8601 (Sep 11 low) followed by 1.8527 (Jul 27 low). Initial resistance is now at 1.8773 (Sep 8 high) followed by 1.8872 (Sep 7 high).

• Australian Dollar – 0.7525

Initial support at 0.7495 (50% retracement of the 0.7269 to 0.7722 rally) followed by 0.7442 (61.8% retracement of the 0.7269 to 0.7722 rally). Initial resistance is now at 0.7601 (Sep 8 high) followed by 0.7683 (Sep 7 high).

• Gold – 605

Initial support at 574.85 (76.4% retracement of the 543.50 to 676.35 advance) followed by 561.0 (Jun 20 low). Initial resistance is now at 606.75 (Sep 11 high) followed by 619.4 (Sep 8 high).