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Contributors Compass Directions Morning Report Wednesday, 16 November 2011

The new Italian Prime Minister Mario Monti appears to have the support of international investors as market optimism improved that he would be able to form a new government that would effectively tackle the debt crisis. The former EU Commissioner and advisor to Goldman Sachs has been in talks with political parties, unions and employers and has stated that all parties have agreed to “possible sacri-fices” to obtain a “positive result”. The EUR opens the Asian session today at 1.3540.

Markets were stable even as the spread between German bunds and French, Belgian, Spanish and Austrian debt rose to euro- era highs. The markets were calmed and placated by data released by the US Commerce Department that showed a 0.5% gain in retail sales above expectations of 0.3% and the Empire State Manufacturing Index showed expansion for the first time since May. In the UK, BOE Gover-nor King said that inflation could fall more sharply than expected due to substantial risks to the global economy and this saw the GBP fall to as low as 1.5798.

In a rare session of trade, the equity markets were less focussed on the turmoil in Europe and more on strong data out of the US. The general economic index for the Federal Reserve Bank of New York showed expansion while retails sales grew more than expected. The S&P 500 rose 0.87% to 1,263 with financials and technology stocks rising after early falls when a Spanish bond auction resulted in higher yields. Earlier In Europe, the DAX fell 0.87% to 5,933 while the FTSE closed flat at 5,517.

Commodity prices rose on stronger than expected US data. WTI Crude Oil surged 1.36% higher to $99.50. Precious metals recovered from early losses in Europe with gold higher by 0.23% to $1,783 and silver rising 1.37% to $34.50. Soft commodities broadly rose with cotton and coffee surging more than 3%. Copper futures gained 0.37%. Today, we have the release of the Australian Leading Index and Wage Price index and the Japanese Monetary Statement.

GOLD reversed the losses seen in Asia and European trade after US retail sales data came in better than forecast adding support to equities and commodities as the demand outlook improves.  This data saw the USD weaken and equities rally sharply off the lows and precious metals benefited as crude and copper both gained. Gold traded finished US trade higher by 0.25% at $1,781. Gold continues to be a great investment right now and any dips are being very well supported. Trend support which had now moved up to $1,759/60 held perfectly last night and we have seen a subsequent bounce of this level. We now expect another test on the recent highs at $1,800/02 this week and we should get quite a big move on a break of the level as stops will be tripped. Gold should benefit no matter which way the markets go right now as uncertainty remains and USD weakness will support prices as demand and growth outlooks improve.  Intra day support is seen towards $1,773 and a break through offers at $1,785 should initiate a move higher in Asia towards $1,795/$1,800.

AUD/USD saw pinned within the Asia afternoon range during the European morning when the market was hit with a medium size buy order in the AUDJPY which took the to meet 1.0200 offers. I what looked more like a short squeeze failed to trip the targeted 1.0200 level and the bears quickly took control of the price action as the Euro and Sterling continued their Asia afternoon declines. AUD managed to briefly touch 1.0115 before early US names were seen buying the dip. Intraday range traders jumped on the move and with the better than expected US data and improving US equity market in the afternoon the pair is closing the day higher than yesterdays Asia close at 1.0188.  There is a couple of medium level pieces of data with MI Leading Index and Wage Price Index but these are unlikely to have an effect.  We will be watching to see if the pair can trip the stops above 1.0200 and if so we could see a rally to 1.0230 maybe 1.0250 where we should see intraday names on the offer!


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