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Contributors Compass Directions Afternoon Report Wednesday, 16 November 2011

The positive close of American equity markets and the renewed optimism spurred by better than expected US economic data releases did not follow through to the Asian trading session today. The focus of Asian investors was on the worrying and persistent rise in yields of the peripherals European nations. Focus is now not only on Italy but Spain, Belgium and Austria and France. The EUR fell throughout the day to trade as low as 1.3435 and is at a one month low against the JPY. The GBP continues to trade lower testing 1.5750.

The Bank of Japan kept monetary policy unchanged while downgrading its assessment of the global economy as Europe’s debt crisis impacts on Japanese exports. The BOJ Governor left the bank’s asset buying fund unchanged at USD260 billion after increasing it on October 27. The overnight lending rate was held at between zero and 0.1%. In other news, foreign direct investment in China fell to USD 8.33 billion in October against USD 9.05 billion in the previous month. USDJPY is back to its old ways of trading in 20 point rang-es and closes the Asian session at 77.00.

Equity markets across Asia fell. The MSCI Asia Pacific Index is down about 0.9% with all 10 industry groups falling as three stocks fall-ing for every one that fell. The Hang Seng is down 1.94% to 18,973 while the Nikkei is lower by 0.77% to 8,476. The ASX 200 closed lower by 0.89% to 4,247 with the big banks and energy stocks lower.

Commodities have eased during trade today as investors sold on the back of European jitters. The WTI crude oil price fell 0.68% to $98.69 as it failed to break through the $100.00 psychological barrier. Precious metals were also caught up in the selling with gold falling by 1% to $1,765 as silver lost 0.8% to $34.20. Soft commodities were lower with cotton losing almost 2% while copper prices fell 1%.

GOLD struggled in the Asian session today as commodities were sold down across the board on the back of rising European bond yields and concerns that we may see a more severe global slowdown than first thought.  Copper prices were the key to driving commodities broadly lower and most commodities are finishing the session on the days lows. The USD gained throughout the session and equities tumbled going into the close. Gold traded in a $1,763-83 range and finished the session weaker by 0.90% at $1,766. We are a little surprised by the weakness in Asia today for precious metals as we would have suspected demand to kick in again down at sub $1,770 levels but as the USD is strengthening sharply it is hard for Gold to find its feet.  We still remain bullish in the short-term as we see this as consolidation before a much bigger move higher and as long as support at $1,750 holds we should see this move.  Trend support has now risen up towards $1,760 so it would be good for this level to hold but is not the end of the world if it is broken.  However, if we see a breach of support down at $1,635 we should expect further weakness targeting $1,695 major support. Resistance is firm at $1,783/85 and we must see a break of this level for the upside to resume. We may see a false break of $1,760 and a test on $1,750 and this is when we would get long for tonight’s session with stops just under $1,735.

AUD/USD continues to suffer from the biggest falls when compared to the other majors as the outlook for the global economy looks increasingly frail as European peripheral bond yields continue to rise towards junk status levels.  A fall in direct foreign investment in China in the month of October also acted as a warning signal to the China bulls. The AUD has fallen more than 1 cent today to a low of 1.0071 after trading as high as 1.0184 early in the day.  Even the better than expected US data failed to buoy markets today as investors once against refocussed on the European debt crisis. The release of the leading index and wage price index had minimal impact on the currency. A test of parity looks imminent as the currency struggles to hold above the 1.0080 support level.  We will be watching for the markets to trip corporate stop losses at 1.0050 level on the way to test support at 1.0030 before a break of parity. Resistance is building at 1.0170.

 

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