Australian FOREX Daily Outlook 16/01/2006

• The Dollar weakened against the major currencies overnight due to softer than expected US economic data. The softer than expected data further raised market expectations that the US Federal Reserve could soon be nearing an end to its rate hike cycle. The headline US producer prices index (PPI) rose by 0.9% in December, greater than the market’s expectation of a 0.4% rise. However, the more widely-watched core PPI only rose by 0.1% in December, below the market expectation of a 0.2% rise. Falls in the price of cars and light trucks contributed to the low core results. US retail sales lifted by 0.7% in December, below the market’s expectation of a 0.9% rise. A combination of rising mortgage interest rates, higher gasoline prices and heating costs contributed to the lower than expected consumer spending. In other markets, the Dow Jones finished down 2 pts. US treasury prices jumped (yields fell) on Friday following a mild reading for the US core PPI and uninspiring retail sales figures. Looking ahead, the US has a national holiday for Martin Luther King.

• The Euro rose from 1.2032 to as high as 1.2145 and closed near its high in New York.  The Euro benefited initially from comments by ECB President Trichet that the bank must be vigilant in watching inflation expectations. The Euro then received another boost from the weaker than expected numbers out of the States. The second estimate for Eurozone GDP showed an upward revision for Q3, from 0.4% quarter-on-quarter reported previously to 0.6%. Annual growth now stands at 1.6%, from 1.2 % reported previously. There are no major releases scheduled in the Eurozone today.

• The Japanese yen gained against the dollar, rising from JPY 114.78 per US dollar to JPY114.10, before closing near its highs in New York. In Japan on Friday, core machinery orders rose by 2.3% in November, below the market expectations for a 5.3% rise. Annual growth slowed from 8.5% to 3.2%. In Japan today, the current account surplus widened 15.1 percent in November from a year earlier to 1.4182 trillion yen ($12.42 billion), less than economists had expected but export growth was seen as a positive sign for the economy.        Forecasts had centered on a surplus of 1.51trillion yen, a rise of 22.5 percent.

• The Sterling rose from 1.7600 trading to a three-week high of $1.7782 against the dollar, before closing near its highs in New York. In the UK, later today sees the release of the PPI. Producer input price inflation is expected to rise by 1% for the month taking it to a record high of 15.7% yoy in December. Producer output price inflation is expected to be up 0.1% for the month taking it to 2.8% for the year. Core output price inflation is expected to come in at 1.5% yoy in December.

• The Aussie lifted from 0.7499 to trade as high as 0.7553, before closing in New York at 0.7540. The Aussie dollar continues to benefit from the rally in base metals. Base metal prices rose again overnight with Gold hitting a 25 year high. Gold rallied from speculative buying and the weaker dollar. Gold rose by US$7.70 to US$557.00 an ounce before closing at 555.00.

TECHNICAL COMMENTARY

• Euro – 1.2160

Initial support at 1.2007 (Jan 12 low) followed by secondary support at 1.1980 (50% retracement of the 1.1778 to 1.2181 advance). Initial resistance is now located at 1.2181 (Jan 6 high) followed by 1.2208 (Oct 6 reaction high).

• Yen – 113.90

Initial support is located at 113.73 (former resistance from Jul 20) followed by 113.53 (61.8% retracement of the 108.76 to 121.41 advance). Initial resistance is located at 114.91 (Jan 11 high) followed by 115.52 (former support from Dec 19).

• Pound – 1.7790

Initial support is located at 1.7577 (Jan 12 low) followed by 1.7516 (Jan 11 low). Initial resistance is located at 1.7810 (Dec 14 high) followed by 1.7901 (Oct 27 high).

• Aussie – 0.7570

Initial resistance is located at 0.7580 (Dec 14 high) followed by 0.7605 (Oct 27 high). Initial support is located at 0.7481 (Jan 11 low) followed by 0.7444 (Jan 5 low).