Australian FOREX Weekly Outlook 12/12/2006

12/12/06

last week’s currency trading review

The Dollar started the week on soft footing but managed to end the week stronger due to better than expected payrolls. The Euro closed last week at 1.3286 having started the week at 1.3350. As expected the ECB raised rates to 3.5%, however Trichet did remove the word ‘vigilance’ from the accompanying statement which brought Euro under some pressure. US/JPY closed the week 116.40 having started the week at 115.35. The stronger than expected US data combined with a downward revision to Japanese GDP weakened the Japanese yen significantly. The Sterling closed last week at 1.9568 having started the week at 1.9747. The Aussie closed last week at 0.7883 having started the week at 0.7901.

The forex trading week preview

In the States the FOMC meeting (Tuesday) will be the key event this week. They key activity releases are expected to be retail sales (Wednesday) and industrial production (Friday). The New York Fed survey, which last month surprised on the upside, is forecast to slip lower in the December update (Friday). Inflation in the US is not the concern it once was, although after some better–than-expected October results the market is looking for a slightly worse outcome in November (Friday). Finally in the US, there will be the usual interest in the trade balance (Tuesday). We will provide our previews of these data releases in the daily summary.

In the Eurozone it is still probably true to say that the major release is going to be the German ZEW survey (Tuesday), although there appears to be a growing sense of unease about the value of the survey. Italian industrial production (Tuesday) is forecast to have bounced after declines in the previous month. A similar pattern is expected for the Eurozone with a rebound which will reverse the September drop (Friday). The final Eurozone inflation report for November (Friday) will also be watched closely by the market. In the UK the data highlights are similar to those in the US, with the excitement expected to be generated by retail sales (Thursday) and consumer price inflation (Tuesday). In the labour markets (Wednesday), the underlying rate of increase of average earnings is forecast to have edged higher. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the BoJ’s quarterly Tankan survey will be greeted with the usual over-blown fanfare (Friday). Indeed, the interest in the current offering may be even greater than usual given the following week’s BoJ policy meeting. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro 1.3250

Initial support at 1.313 (Dec 11 low) followed by 1.303 (38.2% retracement of the 1.2483 to 1.3368 advance). Initial resistance is now located at 1.3368 (Dec 4 high) followed by 1.344 (Mar 16, 2005 high).

• Yen 116.90

Initial support is located at 116.17 (Dec 11 low) followed by 114.89 (Dec 8 low). Initial resistance is now at 117.26 (Dec 11 high) followed by 117.62 (76.4% retracement of the 118.61 to 114.43 decline).

• Pound – 1.9600

Initial support at 1.9463 (38.2% retracement of the 1.8838 to 1.9849 advance) followed by 1.9434 (Nov 29 reaction low). Initial resistance is now at 1.9729 (Dec 8 high) followed by 1.9849 (Dec 1 high).

• Australian Dollar – 0.7855

Initial support at 0.7811 (38.2% retracement of the 0.7614 to 0.7933 advance) followed by 0.7769 (Former resistance from Nov 1). Initial resistance is now at 0.7933 (Dec 8 trend high) followed by 0.799 (Mar 8, 2005 high).

• Gold – 629

Initial support at 621.0 (Nov 20 low) followed by 614.8 (Nov 17 reaction low). Initial resistance is now at 638.1 (Dec 8 high) followed by 650.2 (Dec 1 high).