Australian FOREX Weekly Outlook 23/01/2006

23/01/06

last week’s recap

The Dollar finished largely unchanged against the major currencies last week. The Dollar strengthened against the majors early in the week, but gave away its gains late in the week on Iranian tensions. A senior Iranian official confirmed that the country had started to transfer assets from European accounts to other foreign banks ahead of possible UN sanctions. The dollar also suffered late in the week from a growing consensus within the market that the Fed is reaching the end of its rate hiking cycle. Eurozone currencies such as Euro and the Swiss Franc benefited from the geopolitical concerns. Investors favor safe-haven assets such as the Swiss franc over the dollar as worries about an escalation in the standoff between Iran and the West over Tehran‘s nuclear programme reduced investors’ appetite for risk. The Japanese yen also benefited late in the week on the back of general dollar weakness in addition to comments by BoJ Governor Toshihiko Fukui’s which sounded upbeat on the prospect of ending Japan’s ultra easy monetary policy, leaving the door open for possible rate hikes.

The week ahead

The coming week could possibly show a pause in the pace of activity with US GDP growth expected to have dipped in Q4, and the German IFO survey is expected to have declined. However, analysts feel in both cases this could prove to be a pause, rather than a fundamental change of trend.

In the States the key release will be the first estimate of Q4 GDP (Friday). Analysts expect two major negatives on the pace of growth. One is a decline in consumer spending and the other is a significant negative contribution from net exports. Serving to support growth should be a positive contribution from inventories and a still healthy expansion in business investment spending. Analysts are looking for declines in both existing home sales (Wednesday) and new home sales (Friday). Both sets of data are for December. The one piece of data that could continue to impress is likely to be durable goods orders (Thursday).We will provide our previews of these data releases in the daily summary.

In the Eurozone the main focus will be on the business surveys for January. The most important will be the German IFO business climate index (Wednesday). The industrial sector in France appears to have lagged a bit, so analysts look for a more positive result in January from the INSEE survey (Wednesday). Italian business confidence (Friday) has been a more consistent performer and analysts expect the uptrend to continue. In the UK the first estimate of Q4 GDP is due on Wednesday. The market will also get an update from the MPC with the release of the minutes from the early January meeting (Wednesday) when base rates were left unchanged. The surprise from the last set of minutes for December was that there was one vote for a rate cut from Stephen Nickell. The market will be paying close attention to see if he has maintained that position. We will provide our previews and reviews of these data releases in the daily summary.

In Japan the coming week provides little in the way of data. In Australia the only piece of key data will be the release of CPI on Wednesday. The market will pay close attention to see if the final quarter of CPI keeps the annual rate within the RBA’s 2-3 % band. We will provide our previews and reviews of these data releases in the daily summary.

Key Weekly Pivot levels

• Euro – 1.2285

Initial support at 1.2181 (Former resistance from Jan 6)) followed by secondary support at 1.2137 (Jan 23 low). Initial resistance is now located at 1.2365 (76.4% retracement of the 1.2590 to 1.1638 decline) followed by 1.2590 (Sep 2, 2005 high).

• Yen – 114.75

Initial support is located at 113.99 (Trendline support) followed by 113.79 (Jan 16 low). Initial resistance is located at 115.91 (Jan 17 high &amp trendline resistance area) followed by 116.35 (61.8% of 118.16-113.41 decline and near Jan 5 high).

• Pound – 1.7840

Initial support is located at 1.7702 (Jan 18 low) followed by 1.7523 (Jan 11 low). Initial resistance is located at 1.7901 (Oct 27 high) followed by 1.7947 (61.8% retracement of the 1.8501 – 1.7052 decline).

• Aussie – 0.7510

Initial resistance is located at 0.7577 (Jan 18 high) followed by 0.7600 (Trendline resistance). Initial support is located at 0.7446 (38.2% retracement of the 0.7235-0.7577 climb) followed by 0.7406 (50.0% retracement of the 0.7235-0.7577 high).