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Currencies AUD Compass Directions Afternoon Report Monday, 14 November 2011

The USD has pared early losses this morning after the majors continued to gain after Friday’s strong performance and with the weekend news that Italian PM Berlusconi had resigned . Growing optimism in Europe and US data that continues to surprise on the upside have seen investors return to riskier assets on thin volume, which is still keeping markets on edge with time and stability the only things being needed in the view of the major global leaders.

At the APEC conference in Hawaii, President Obama spoke about the need for China to allow the Renminbi to be more freely traded and made comments about the situation in Iran where there is increasing speculation that the nation is very close to developing a nuclear weapon. The selloff of the majors during the Asia afternoon on the back of the Obama com-ments and realization that the same problems still exist in Europe has risk assets closing the day lower. AUD 1.0300, Euro 1.3770, GBP 1.6060 and JPY 77.13.

Equity markets traded broadly higher in Asia today after a strong offshore lead on Friday after better US consumer senti-ment data lead investors back into equities on the night. We did see gains flow through into Asian trade today but these gains were limited and we did see profit taking set-in late in the day as the APEC meetings came to an end and there was some commentary that had investors concerned as significant risks remain. Japanese equities rose on the back of a positive GDP read and go into afternoon trade higher by 1.20% at 8,616. Hong Kong’s Hang Seng is currently higher by 2.40% at 19,595 and China’s Shanghai Composite is stronger by 1.70% at 2,522. The ASX 200 had a positive start to the session but as the day progressed we saw gains diminish as the USD gained and commodities retreated. The ASX 200 finished trade marginally higher by 0.20% at 4,304.

Commodity prices continued to firm today. WTI crude oil rose as concerns over tension in the Middle East and escalation of the situation in Iran saw prices rise above $99.00 today, the highest levels since July. Precious metals also rose with gold higher by 0.43% to $1,796 and silver gained 0.3% to $34.78. Soft commodities broadly gained and copper surged almost 3%. Overnight, we have the release of the CHF PPI and European Industrial Production.

GOLD continued its steady move higher in Asian trade as commodities broadly gained on higher equities and a steady USD. Copper prices lead the way adding support to everything else as all in all it was a quiet Monday as usual. Gold traded in a $1,787-96 range and finished the session stronger by 0.30% at $1,793. Gold continued to push higher in Asia today and we got very close to retesting the highs at $1,800/02 but the lack of liquidity in Asia made it very difficult to see a break through this level. We expect to see this level cleared in early European trade and if we can maintain the break then we could see a big move up towards $1,815/16 initially and then $1,840. It really depends on how big the stops are above $1,800/02 but it looks as though a big move higher is nearly ready to go. Any pullback from here should be limited by support at $1,777 and this is a great level to get long in the short-term with stops below $1,835. If resistance at $1,800/02 fails and we see a false break we could see some short-term profit taking set-in but any losses should be limited in the $1,750-$1,777 region. The trend remains firmly in tact and higher prices are now just a matter of time as long as uncertainty remains in Europe and inflation is on the rise.

AUD/USD was one of the best bouncers during the morning as weak stops were hunted with the pair hitting solid offers and resistance lines at 1.0355. The market could not hang onto the level and in midday trade the price fell back to break below 1.0300 and post a 1.0288 low.  Since the low the price has been getting capped by an unnamed Aussie bank in the mid 1.0310’s. Talk around the market is that the interbank still wants to trigger some stops above the current highs before the next move south, so if we were to see sharp spikes that aren’t seen across the markets it could be a good intraday risk reward trade. The levels to watch over the coming sessions still remain the 1.0355/65 resistance with a possible break seeing the pair trip be enough stops to warrant the price getting to 1.0400 possibly 1.0425. On the downside a 1.0260 will see the markets target the more important 1.0225 level and if that is broken the bearish momentum will be underway yet again.


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