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Contributors Compass Directions Morning Report Monday, 21 November 2011

As Spanish, Italian and French bonds continued to rise and investors focussed on the Fitch report outlining the threats of the European debt crisis to the American banking systems, the markets lost ground on Friday night. News throughout the week that the German Foreign Ministry was considering the possibility of “orderly defaults” beyond Greece did not help market sentiment. In other news, as political change sweeps Italy and Greece, it appears that the Spanish opposition party will win the biggest majority in over three decades as another incumbent government succumbs to the European debt crisis. The EUR opens the week just above 1.3500.

In the United States, the 12 member “Supercommittee” set up to formulate a plan to cut the Federal deficit looks likely to miss the November 23rd deadline to agree on the terms of the agreement as Republican and Democrat lawmakers bicker over differences of opinion over taxes and spending. $1.2 trillion of spending needs to be cut from the budget and any delay will further impact on already fragile investor sentiment. Amid all the global turmoil, the Australian dollar looks likely to con-tinue its recent falls as it opens the Asian trading around parity after falling to as low as 0.9963 on Friday.

Global equities closed the week lower with the S&P 500 recording its worst week in two months as the credit markets in Europe continue to point to a worsening crisis there. Alcoa, Chevron and JP Morgan Chase all lost more than 8% while Abercrombie and Fitch fell more than 15% for the week. The index closed 0.04% lower to 1,216 losing 3.8% for the week. Earlier in Europe, the DAX closed 0.85% lower to 5,800 while the FTSE fell more than 1% to 5,363. Today, we have the release of the Japanese Monetary Policy Meeting Minutes and Trade Balance.

Commodities eased as the outlook for the global economy once again dimmed. WTI crude fell more than 1.2% to $97.67 as speculation rose that a reversal in the Seaway pipeline will not be enough to reduce over-supply in the US Midwest. Precious metals gained ground after easing earlier in the week with gold closing higher by 0.28% to 1,725 while silver gained 2.91% to $32.50. Soft commodities were mixed while copper rose 0.57%. The CRB index is lower by 2.31 points to 312.21.

GOLD continued to consolidate in offshore trade on Friday as most other major asset classes including equities and currencies saw the same consolidation theme after steep losses throughout the week. Copper prices did manage small gains along with silver but crude remained pressured as profit taking set-in and bullish bets were reduced.  Gold finished US trade stronger by 0.30% at $1,725. We remain neutral in the short-term 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 MT bull. Indicators are now pointing towards oversold conditions and we are now seeing some bullish divergence which suggests that a bottoming is starting to occur in the nearterm.  We still favour that a break above $1,750 will initiate a re-test of the highs at $1,800/02 and then we will see a big run-up on a break of the latter.  Intra session today in Asia we expect a move higher as long as support at $1,711 holds and for a move towards 41,735/36 which should cap today.  A break here and we would extend towards $1,750.

GBP/USD played follow the leader during the end of weeks trading with little local factors to control its own price and the Cable followed the Euro. Early positive chatter about ECB buying unlimited Bonds was enough for the late Asia bearish bias to be changed with the European session providing a large bounce which took Sterling above the 1.5810 offers managing to trip the stops around 1.5820 on the second attempt with the price storming to 1.5880. However, the morning US session was to quickly turn back to bearish on German reports of expected defaults setting a negative tone into the afternoon close.  Sterling closed the week slightly higher than the Asia close at 1.5790.  Selling on spikes and buying on large dips continues to be the intraday traders friend and low liquidity across most markets is seeing over extended moves which because of the fractured state of the markets can’t trend! A break below 1.5750 would have us looking for a retest of last week’s bottom and the overall bearish tone to increase yet again.


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