» Market Outlook for February 9, 2012

Recap of the Latest Global News
By Keagan York on Feb 9, 2012

European finance ministers have convened an emergency meeting in Brussels today as the Greek government continues to struggle to finalize of terms of its next rescue package. The ministers will meet with IMF chief Christine Lagarde but no agenda has been announced. Meanwhile, the caretaker government led by Prime Minister Papademos is locked in intense talks with its coalition partners to finalize terms on the package which is crucial if Greece is to meet a EUR 14.5 billion bond payment on March 20. Papademos is also holding talks simultaneously with the so called ‘troika’. In the absence of further developments the EUR has firmed to trade at 1.3260.

The unprecedented action by central banks around the world to intervene in the markets has clearly impacted in a positive way on volatility in the markets. The move by the Federal Reserve to announce that it will keep interest rates low until 2014 and the action of other institutions globally to increase liquidity in the financial markets has seen volatility reduce significantly this year. The risk on/ risk off moves encountered last year with multi percentage moves in assets prices on what seemed like a weekly basis have now subsided. Investors appear happy to undertake a wait and see response. The Australian dollar continues to perform extremely well in this environment and opens today at 1.0800.

Central bank action and intervene have clearly impacted on share market volatility. Once again markets were relatively subdued. The Dow Jones is still trading at its highest levels since 2008 as investors tread water in anticipation of some sort of a resolution in Greece. Finance and technology stocks gained the most on the S&P 500 which closed 0.22% higher at 1,350. Earlier in Europe, bourses closed relatively flat with the DAX down 0.08% to 6,749 while the FTSE lost 0.24% to 5,876.

Commodities News

Commodity prices have eased slightly. The CRB index has closed 0.23 points lower at 314.77. After spiking to above $100.00 on the back of rising stockpiles, WTI crude has back to $99.00 this morning. Precious metals have lost ground with gold losing 0.71% to 1,736 while silver fell 0.58% to $34.00. Soft commodities were broadly lower while copper is up 0.76%.

GOLD

GOLD our move to a neutral stance on gold in the short term has been validated over the past week as the strong uptrend has clearly stalled. The range overnight was $1,724 to $1,751. Gold looks likely to maintain this range for the short term as investors seek further developments and clarification of the situation in Europe. Gold opens the morning at $1,732. Given our neutral short term bias we expect more of the same with gold expected to maintain recent ranges for now. It will only take some form of even minor shock, most likely emanating from Europe or the Middle East to propel the price above strong resistance at $1,750. For today, we are unlikely to initiate any trades given the high event risk associated with announcements that may come from any one of the parade of cast members involved in the Greek drama. We clean break of $1,755 will have us buy while a test of support at $1,720 will see us enter into a short term long position.

FX News

AUDJPY

AUD/USD during Asia drifted down to find support at 1.0780 with no real momentum to back below small bids which built up towards the end of the US session. It wasn’t until the Europe-an morning and a positive run of the majors and again some caught intraday shorts buying as the pair again broke above 1.0800, which saw a test and break of the previous high to post a 6mth top of 1.0845. Slow US equity markets and the Troika draft report being delivered to the market has got the markets asking more questions than before. How will the Greek Gov cut medical spending from 1.9% to 1.5% of GDP with such a high number of pensioners. Anyway, the AUD fell back below 1.0800 to hit our major support line of 1.0765 before closing the day at 1.0792. Data free Thursday for the Australian markets, however, there is a lot of European session releases, which could have a large bearing on the price of the AUD at the time of the data releases. A break below 1.0765 is this a pivotal level to us with a likely fall to 1.0725 possibly 1.0655.

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