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Currencies AUD Compass Directions Afternoon Report Monday, 21 November 2011

Markets continue to ease as changes to the political establishment in Spain following the recent political shifts in both Italy and Greece unnerved investors. The impasse in the US with the 12 member supercommittee charged with coming up with a plan to reduce the US budget deficit by $1.2 trillion also weighted on the market as the November 23 target quickly ap-proaches while Democrats and Republicans in the committee continue to bicker over key aspects of the plan. The majors eased in trade with the EUR testing 1.3500 while the GBP is now trading below 1.5750.

Further weighing on the markets was data released out of Japan that showed that Japanese exports fell for the first time in three months and the trade balance swung back into deficit. Furthermore, forecasts for growth were downgraded by Singa-pore. Increasing concerns with the Chinese property market with Nomura releasing a report that stated that the market is at a “tipping point” and forecasting a dramatic fall in demand for building materials in China also increased risk aversion. The Australian dollar traded to as low as 0.9942 today and looks set to continue its decline.

Equity markets eased today as the MSCI Asia Pacific Index fell 1% with five shares declining for each share that gained. Tai-wan’s Taiex Index lost more than 2% while the Hang Seng Index is down almost 2% to 18,152. The Nikkei has lost 0.3% to $8,349. The ASX 200 closed 0.34% lower to 4,163 with illiquid trade the main characteristic of the day. Lower volumes have become more and more common in trade as investors stay in the sidelines as the increasingly uncertainty in Europe weighs on investor sentiment.

Commodity prices eased in trade today. WTI Crude fell 0.3% to $97.35 while Brent held steady at $107.60. Precious metals consolidated with gold down marginally to $1,722 and silver losing 0.95% to $32.18. Soft commodities were mixed while copper fell 0.9%. Overnight, we have a very light on day in terms of economic data releases with the only high impact data being US existing homes sales.

GOLD continued to consolidate in Asian trade today as most markets softened with the negative lead from the lower equity markets on Friday. The range today was $1,712.60 to $1,725 and is closing the afternoon near the top of this range at $1,722. We remain neutral in the shortterm until we see a close back above $1,750 but as long as we see short-term trend support at $1,690/95 hold we are a buyer and a medium term bull. The technical indicators are pointing to a over sold conditions and with bullish divergence, the price looks likely to gain imminently. We are looking for a break of $1,750 before a retest of the recent highs just sub $1,800. A firm break of this level will lead to an accelerated rise through gold’s all time high. Support at $1,711 held perfectly in trade today and we now expect a move above the day’s highs in the overnight session. A break of $1,725 should see a move towards $1,750 and confirm that a bullish trend is in place.

AUD/USD started the new week with a bearish tone as the market hasn’t had any positive developments over the weekend and with this in mind the early interbank traders tested the previous 0.9980 lows. The managed to get the stops with the price quickly moving towards the next level of support at 0.9940. Bottom pickers and earlier sellers provided enough buying to start an afternoon recovery with the talk in parliament that the mining tax will get passed and Assist Gov Debelle stating that Banking Home Loan rates are roughly where they want them. The markets took the comments as a sign
that the RBA would be leaving rates on hold at the December meeting. The pair managed to get back to 0.9985 and as we close the day the price has moved a couple of spreads lower.  Look for the bearish tone to continue during the twilight zone with a possible bounce once the London market opens as they think they are picking up cheap AUD. Once the Euro backs 1.3500 the bears will attack again.


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