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Currencies AUD Compass Directions Afternoon Report Tuesday, 29 November 2011

European finance ministers will meet again tonight to try to formulate a plan to boost the European Financial Stability Fund. Speculation of some sort of an announcement that will address the debt crisis head on saw risk appetite rise throughout the day. Although the market was buoyed by potential actions and plans out of Europe, the reality was more sobering. The OECD warned that the Eurozone is more than likely already in recession and that the crisis there may drag the entire world into recession. The EUR is closing the Asian session near the day’s high at 1.3370.

Furthermore, unemployment in Japan surged to 4.5% much higher than median expectations of 4.2%. Major Japanese cor-porations have been cutting jobs as the strength of the yen erodes profits and the country continues to struggle to recover from the March earthquake. The Australian government announced that it will cut almost $7 billion in spending to meet a promised budget surplus as the European debt crisis. The announcement placed some pressure on both the Australian dollar and equity markets. However, as the EUR climbed in the afternoon, the AUD is now trading at its highs of the day at 0.9970.

Equity markets gained for the second day following the lead from the strong US markets in the wake of speculation that Eu-ropean ministers are planning to announce another plan to stem the debt crisis. The MSCI Asia Pacific is up more than 1% with three shares climbing for every one that fell. The Index is still down 7.8% for the month of November. The Nikkei gained 1.32% to 8,397 while the Hang Seng rose 0.46% to 18,121. The ASX 200 closed the day higher by 0.62% to 4,083 after initially falling on the back of the Gillard government’s budget cuts. Banks and energy stocks performed well both ris-ing more than 1%.

Commodity prices eased slightly despite the positive moves in equity markets. WTI crude fell by 0.7% to $97.55 on expecta-tions that gasoline stockpiles may have increased in the US. Precious metals consolidated with gold relatively flat at $1,714 while silver eased 0.83% to $32,00. Soft commodities eased while copper was flat for the session. Overnight, we have the release of the high impact UK Nationwide House Price Index and US consumer confidence.

GOLD consolidated in Asia trade today as profit taking set in after the recent rally up from $1,665 but big gains are still yet to be seen and we should trigger these in the coming sessions as further USD weakness is seen. Commodities were broadly unchanged in Asia as we await European trade and US data tonight. Gold traded in a $1,706-13 range and finished the session unchanged at $1,713. A slow and quiet grind in Asia for precious metals today as we were ultimately directionless on the day as liquidity remained thin and traders await the reaction in Europe this morning after such big gains last night. We may see some initial selling pressure as European equities struggle at the open but we expect support towards $1,700/02 to limit any losses and for a bigger move higher targeting $1,21 initially and then $1.735. We continue to say that gold is going to see a big move higher soon and get ready for this as it will take prices all the way back for a test of major resistance at $1,800. We remain a buyer of dips towards $1,690 with stops just below $1,675 for now. We target $1,750 this week but ultimately a close above here and we could see some big gains. Watch the Euro and US consumer confidence for direction tonight as a rise in the Euro should trigger big gains.

AUD/USD opened the Asia session with the price around 0.9885 which was the previous Asia session high and from the outset the overnight bid tone came back into the price with the pair finding buyers from caught exporters that can’t wait any longer for the AUD to fall.  The price managed to briefly touch 0.9922 before quickly coming off as the Australian Government budget has a $20bio black hole.  Cuts to spend has been taken from the markets as a negative due to the fragile stat of the economy and likely expectations that China will slow causing more problems for government spending. We now close the day with the price near the highs of the day as the AUD tracked the EUR higher. Whilst we have been looking at 0.9860 over the last 24 hours the 0.9800 support is quickly growing in importance for the medium term bears. A break confirms the path is still in play but a move back towards and possible break of parity could be the start of a longer term squeeze to the 1.03/04 area.

 

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