Australian FOREX Weekly Outlook 29/03/2006

29/03/06

last week’s recap

The Euro closed last week at 1.2035 having started the week at 1.2196. USD/JPY closed last week at 117.44 having started the week at 115.82. The GBP closed last week at 1.7431 having started the week at 1.7568. The AUD closed last week at 0.7103 having started the week at 0.7348.

The Dollar continued its strong run, soaring across the board early in the week due to the unexpected 5.1% increase in February existing home sales. However, the greenback retraced more than half its gains when new-home sales recorded the biggest decline in 9 years on Friday. The Euro had a solid week versus the key crosses as the hawkish rhetoric continued to come out of the ECB. According to Reuters, ECB President Trichet told French television station LCI that inflation was running above the central’s bank’s target and the ECB would not hesitate to counter price risks, reinforcing market expectations of more ECB rate hikes ahead. The Japanese yen lost considerable ground last week due to comments by BoJ’s Mizuno. Mizuno said he expects Japanese overnight rates to remain close to 0% and that an early rate rise could have powerful adverse effects on Japanese economy. The Sterling also lost ground against the dollar last week. As monetary policy remain the key driver of currency markets, focus remained on the minutes to the March MPC meeting, which showed an 8 to 1 vote for steady policy, with Stephen Nickell the odd man out voting for an easing once again. The Australian dollar continued to lose ground last week, slumping to a fresh 18-month low of 0.7061 in offshore trading.

The week ahead

The key event for this week took place overnight with the Fed raising the cash rate by 25 basis points as expected. The post-meeting statement was little changed with the Fed retaining the key phrase “some further policy firming may be needed” and by doing so left markets with a sense that they retain a firm tightening bias. The main data releases in the coming week are a variety of Eurozone surveys – the most having improved recently, they may be due for a near – term pause.

In the States on the consumer confidence side, the final reading on the University of Michigan measure of consumer sentiment (Friday) has the potential for a modest upward revision, which would ensure a small gain on the month. On the corporate side, the market will be looking closely at the first guide to aggregate US profits for Q4 that comes with the final estimate of GDP growth (Thursday).Profits were hit in Q3 by the impact of the hurricanes, which resulted in a 15% (annualized) decline. A strong bounce is forecast to have occurred in Q4 (Thursday). The market will look closely at the Chicago PMI (Friday) as a guide to the national manufacturing ISM due early next month. We will provide our previews of these data releases in the daily summary.

In the Eurozone the data releases will be dominated by a wide range of survey results. The German IFO released yesterday was the best result in 15 years. The other survey to watch for will be the European Commission’s comprehensive set of surveys for business and consumer confidence (Friday). On the inflation front, the market will get the first – “flash” – estimate of Eurozone inflation for March (Friday).In the UK the main focus will again be on the update of UK consumer borrowing, especially as it relates to the housing market (Wednesday).We will provide our previews and reviews of these data releases in the daily summary.

In Japan it promises to be an interesting week with many releases towards the end of the week. Industrial production will be the first important release on Thursday. Industrial production has not yet fully reflected the optimism that has been apparent in the much –neglected manufacturing PMI for Japan (Friday). On of the reasons for the confidence in the outlook has been stronger consumer spending (the genuine route to self-sustained recovery) and the labour market data (Friday) are generally expected to show ongoing improvement.

Key Weekly Pivot levels

• Euro 1.2000

Initial support at 1.1951 (Mar 24 reaction low) followed by 1.1859 (Mar 10 reaction low). Initial resistance is now located at 1.2110 (61.8% retracement of the 1.2209 to 1.1951) followed by 1.2166 (Mar 21 high).

• Yen 117.85

Initial support is located at 116.25 (March 28 low) followed by 115.50 (Mar 20 reaction low). Initial resistance is now at 118.51 (Mar 24 reaction high) followed by 119.21 (Mar 13 high).

• Pound – 1.7430

Initial support at 1.7308 (Mar 24 reaction low) followed by 1.7230 (Mar 10 reaction low). Initial resistance is now at 1.7597 (Mar 16 reaction high) followed by 1.7626 (Mar 6 reaction high).

• Aussie – 0.7020

Initial support at 0.7000 (Psychological support) followed by 0.6933 (Sept 15, 2004 low). Initial resistance at 0.7152 (Mar 24 high) followed by 0.7220 (Mar 21 high).