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Currencies AUD Compass Directions Afternoon Report Friday, 18 November 2011

Interbank traders targeted stops below parity in the Australian Dollar during the local morning as the signs of a fragile market on the back of weak overnight commodity moves put the fear into the commodity currencies. The minor support at 0.9980 was taken out with the price managing to reach 0.9970 before sovereign names were seen buying across most markets and with that the downward spiral was stopped in its tracks. The following short squeeze has all currencies higher with Euro touching 1.3500 after having found support at 1.3450 earlier in the day whilst Sterling could not move above the reported 1.5800 corporate sell-ing. Reports that Merkel and Morti were holding discussions over the current Italian crisis via phone seemed to help the bullish mid session bias of the market but as the afternoon approached all the majors gave up there gains with AUD back at parity, Euro 1.3475 and Sterling 1.5770.

Reports out of Japan that Toyota would not be able to make a profit on US car sales whilst the Japanese currency was below 90.00 has done nothing to stop the strengthening of the Yen as the pair closes the day just above the next pivot point of 76.80. Reports that stops below in the Interbank market are increasingly becoming a target and we can’t see a bounce for the USD until these are cleaned out.

Equity markets remained under pressure through the Asian trading session today as the negative sentiment seen in Europe and the US flowed into the region today. Negative comments about the property sector in China today didn’t help either and saw China’s Shanghai Composite weaken by 1.50% to 2,425 and Hong Kong’s Hang Seng lost 1.80% to 18,476. South Koreas KOSPI also came under pressure and is generally the leader or loser in the Asian markets, currently weaker by 2.20% at 1,834. Australia’s ASX 200 performed inline with other major bourses as commodity prices remained weak and the AUDUSD dollar continued to fall. The ASX 200 finished trade weaker by 1.90% at 4,177.

Commodity markets were directionless today with early losses seen as equity markets opened and moved to session lows very quickly but we did see some support return in afternoon trade as shorts were seen covering going into the weekend. Crude prices were relatively unchanged with WTI weaker by 0.10% at $98.70 and Brent crude actually gained 0.20% to $108.41 as the spread narrowed slightly after recent losses. Precious metals remained under pressure with Silver declining by 0.40% to $31.37 and Gold finished the session unchanged at $1,720. Copper was relatively unchanged ending the session at $3.40.

GOLD consolidated in Asia today after steep losses were seen in offshore trade as negative sentiment creeps back into the markets. We saw early losses reversed as US equity futures bounced off the lows and the USD lost some of its earlier strength.  Gold traded in a $1,710-26 range and finished the session unchanged at $1,720. IT was a positive day for Gold as we didn’t see a test on major short-term support at $1,695 and we managed to push up towards session highs going into the close as buyers slowly start to return to this market after the sell off from $1,800. Major support at $1,690/95 should hold so we place stops on longs just below here as if we close below this level tonight then we are headed much lower, back towards 41,580-$1,600.  We continue to say do not get sucked into the bears view that there will be an all mighty sell-off as it is just not going to happen with all the uncertainty in the world right now and the printing presses will add inflation to the markets in time. Solid offers are seen towards $1,735 and then solid resistance lies at $1,750. Back above here and we should move to $1,777 initially and then $1,800+.

AUD/USD was taken lower during the local morning as equity markets took the negative overnight lead with directional drive coming from a weaker Gold price. Stops below the parity level were to close for the morning market not to trip and with the minor support level at 0.9980 being breached you would have thought the slide would have had the pair closing below 0.9950. However, with Friday markets doing there normal think after risk off saw bears square up for the day with range trading names jumping on the offers causing a squeeze that was to take AUD to 1.0040 quite quickly.  Afternoon squaring on the other side has the pair back to almost close the day mid range at parity. We are still sitting on the overnight shorts and will continue to watch the markets bias or lack of bias as to an exit point. We have been looking towards the 0.9945 level as an exit but the Asia session looks more like the charm before the storm to us. Low liquidity and position squaring will be the driver into the weekend.

 

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