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Contributors Compass Directions Morning Report Thursday, 17 November 2011

The markets had another roller coaster ride overnight as various developments saw investor sentiment swing wildly despite stronger that expected economic data out of the US. Industrial production rose 0.7% higher than median expectations of 0.4% while homebuilders confidence rose and the cost of living fell for the first time in four months. However, the EUR continues to fall as concerns that the ECB may have to step up its purchases of bonds to hold up the market. The results of upcoming bond auctions in Spain and France will be crucial as spreads between bunds and peripheral nation yields continue to be remain near euro-record highs. The EUR opens this morning at 1.3475 after trading as low as 1.3430 overnight.

The European debt crisis continues to weigh heavily on the markets. Sentiment was negatively impacted by comments from BoE Governor King that the UK faces a “markedly weaker” outlook for its economy amid the continuing European debt crisis. Mario Monti was sworn in as Prime Min-ister and Finance Minister and has officially been given the daunting task of imposing severe austerity measures in an attempt to bring the Italian economy back from the brink of financial disaster. The general malaise in the market has seen the Australian dollar ease to open this morning at 1.0080.
Stocks have closed the session lower as surging oil prices and the European debt crisis weighed on investor sentiment. Equity markets initially rose on talk from the Fed. Boston President that the Fed may coordinate to stem the crisis in the credit markets. The S&P 500 has closed 1.66% lower to 1,237 in late selling triggered by a Fitch report that the European debt crisis poses a significant risk to American banks. Citigroup and Morgan Stan-ley fell more than 4%. Abercrombie and Fitch lost more than 10% as profits missed forecast while Dell lost 2% on slowing forecasted growth. Earli-er in Europe, the DAX closed marginally lower by 0.33% at 5,913 while the FTSE was down 0.15% to 5,509.

Commodity prices were mixed. WTI crude surged more than 3% to above $102.50 as the announcement of the reversal of the direction of a major US pipeline will likely see stockpiles at Cushing, Oklahoma fall significantly. As Brent crude lost ground, the differential between WTI and Brent fell to as low as $8.30 after being as high as $27.88 in mid- October. Gold fell 0.56% to $1,772 while silver eased 1.48% to $33.95. Soft commodities were broadly lower while copper was higher by 0.2%. The CRB index is higher by 1.64 points to 322.51.

GOLD moved firmly lower in offshore trade as we saw a roller coaster ride throughout the session as the ECB stepped in to buy sovereign debt and then as this ended the markets fell to session lows and then we saw a sharp rise as US data improved and then finally, going into the US close we saw a dramatic sell off as Fitch warned of the effect to US banks out of Europe. The USD gained on the night and Gold finished US trade weaker by 1.05% at $1,763. What a night and one of the most volatile nights we have seen in months as a number of events took place that countered one another.  Precious metals suffered as investors shied away from increased volatility on the night. However, having said this we still feel that precious metals held up well despite the sharp rise in the USD and the steep sell off in equities late in the session. We have seen a breach of short-term trend support but remain above key support at $1,750. Only a break here and then through $1,735 opens the door for a test of major support down at $1,695/$1,700. Solid offers remain between $1,77785 and a breach through here is needed to set a base in place and retest major resistance at $1,800/02. Equities will suffer in Asia today so we remain a buyer of dips as we may see further weakness in Asia today.

AUD/USD headed into the London session all beared up with most intraday and short term traders sitting on shorts built up over the Asia session with the idea that the fall would continue! And they were correct to a point with the price managing to reach the previous 1.0050 support. However, at the same time the ECB started buying Spanish and Italian Bonds and this caught the market overly short and with the rally in the Euro, the AUD jumped quickly as a rush to cover took the price to 1.0180. However, the pair couldn’t hold the gains into the US morning with the price returning to 1.0100. For the US session the price has been more controlled with a slight bias to the upside on better than expected US data giving hope to global growth. RBA Gov. Stevens is speaking in Sydney today and his comments about the crisis in Europe and the affect on the Australian economy will be of interest. Building stops below 1.0055 will become a target for the interbank market if the price gets within reach!

 

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