AUSTRALIAN DOLLAR

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GENERAL OVERVIEW OF AUSTRALIAN DOLLAR (AU) MARKET

ISSUE DATE: JULY 11, 2006

AD is likely to continue the pattern it has been in since November 2004 — trading in a range almost exclusively between 7300 and 7900. The rallies and the dips have not been unduly volatile so they have generally been worthwhile. This should continue for some time yet because of the opposing cycle angles yet to play out. We refer to the cycles centred on C1 and C2 — one up and one down. Because markets respond to each and every cycle at some stage, it means AD will continue to trade up and down in the same range as we have had since 2004. The C2 centred cycle ends at 7570 on August 31, so we expect price to be there then. But C1 is a down cycle that does not end until January. So, we would expect AD to fall to the low side of this cycle before its end, or around 6700 in late November or December.

In the near term, D1 should lift AD to IC3, and it has the potential to take it all the way to target 1. But if AD fails to break IC3 we can expect target 2 to be reached.

One other point of considerable interest is that the top AD made on February 2, 2004 (level 7868) falls where we have indicated (green dashed line at HEC). AD made a top at this level on May 11, 2006 (the close was precisely on this line). We think there is a very good chance AD will attempt to reach this level again because it happens to be a natural cycle resistance level, and because it is also a strong attraction zone in terms of cycle forces.

If AD does get to target 1, or even a little lower at IC2, it must represent a major top. On the other hand, markets returning to old long term tops often break up through these levels to start another bull market phase. We will know if this is the case for AD because a bull market phase would instantly be signalled by a break up through HEC!