Australian FOREX Weekly Outlook 30/01/2006

30/01/06

last week’s recap

The Dollar weakened early in the week due to risk averse behavior on the part of market participants globally, on increased geo-political risks. Concerns over Iran’s nuclear programme coupled with developments in Nigeria contributed to higher oil prices and consequently weaker equity markets. Compounding the dollar difficulties early in the week is a market perception that Fed officials are once again focusing closely on the risks from the current account balance. As crude oil prices eased back due to increased US crude supplies, US shares recovered losses which in turn aided the dollar.Strong US durable goods data saw the dollar rise further late in the week. Euro benefited early in the week from geopolitical concerns, and was also assisted by comments by ECB chief economist Otmar Issing who stated that inflation still posed a risk even if prices had retreated a little recently. Despite strong data out of the Eurozone, the euro was unable to hold onto its gains. The Sterling moved in line with the euro as in strengthened early in the week but was unable to hold onto its gains. The Japanese yen was the worst performer out of the major currencies as it weakened considerably against the dollar and the key crosses. The Aussie was directionless during the whole of last week as it continued to be range bound.

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 focus for the week will be the FOMC (Tuesday) announcement. The Fed is expected to raise rates by 25 basis points and the market will be playing close attention to the accompanying statement. With two months worth of data ahead in addition to a new chairman arriving the next day, the market does not expect a definitive signal. This will see the market very focused on the upcoming data releases. The Chicago PMI (Tuesday) and ISM (Wednesday) is expected to show continued strength.Non-farm payrolls (Friday) are also expected to remain firm.Consumer confidence readings, firstly Conference Board (Tuesday) and Michigan (Friday) are expected to remain firm. Initial jobless claims (Thursday) will also be followed closed by the market. We will provide our previews of these data releases in the daily summary.

In the Eurozone the market consensus is that the ECB is unlikely to move on rates this Thursday. The market will pay close attention to the press conference that follows to see if there are any hawkish comments by ECB President Trichet. On the data front, the manufacturing PMI (Wednesday) and services PMI (Friday) are expected to hold at high levels. The Eurozone CPI estimate (Friday) is expected to show a rebound from last month. In the UK house price indicators (Monday) should show further improvement and mortgage lending (Tuesday) is also expected to be strong. Manufacturing PMI (Wednesday) and services PMI (Friday) should both be solid. The CBI retail reading (Tuesday) is expected to soft. We will provide our previews and reviews of these data releases in the daily summary.

In Japan recent strength in exports should show through in firmer labour market numbers (Tuesday) and household spending (Tuesday). The other key event will be the speech by the normally dovish Muto of the BOJ – a shift in his views could signal tightening ahead. In Australia retail sales (Friday) is expected to rebound from a weak November. The trade balance (Friday) is also expected to have narrowed. 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).