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Currencies AUD Compass Directions Morning Report Tuesday, 29 November 2011

Markets rebounded overnight as investors celebrated strong Thanksgiving retail sales growth and increasing speculation that European leaders will announce some new radical plan to save the continent from financial ruin. Perhaps the American consumer was celebrating the fact that their European counterparts are in just a bad economic state as they are, in a classic case of “schadenfreude”. In an ominous sign, the EUR has barely moved against the USD despite the increase in risk appetite overnight and opens the Asian session largely un-changed at 1.3300.

Compass Global Markets CEO Andrew Su, in an interview with CNBC, said that increasingly radical plans will not be enough to save Europe and that the only way to solve a debt crisis is to pay down the debt. Any plan that involves more debt will ultimately fail. All the talk surrounding the ECB’s potential role as the lender of last resort may be academic as it may become the only lender left standing. The Australian dollar was the big winner overnight tracking US equities higher and surging through stop loss levels to trade within 25 points of parity before falling back below 0.9900. The spike higher was aided by speculation of flows related to the SAB Miller $11.5 billion takeover of Fosters.

Equity markets surged overnight as the silly season started early. Boosted by strong retail sales, US equity markets gained as all 30 com-ponent stocks on the Dow Jones rose. The S&P 500 rocketed more than 2.9% to close at 1,193 breaking 7 days of consecutive losses. Investors chose to ignore US new home sales data that came in weaker than expected. Earlier in Europe, expectations that Merkel and Co. were about to bazooka the debt crisis into history saw stocks catapult into the stratosphere as the DAX rocketed 4.6% higher to 5,745 while the FTSE gained 2.87% to 5,312.

Commodities rose with most asset classes overnight. WTI crude oil gained 1.04% to $97.80 as the American consumer went on a holiday spending binge. Precious metals gained with gold rising 1.37% to $1,711 while silver surged 3.15% to above $32.00. Soft commodities broadly gained while copper continues to make good gains rising more than 2%. The CRB index is higher by 2.51 points to 310.36. We have another light data day with only the release of minor Japanese data including household spending and retail sales.

GOLD has been looking very bullish of late even as we declined from $1,800 back towards $1,665 the market was buying dips awaiting another rally and we have just started it. Last night saw a breach back above $1,711 which was a very important level and we are now on the way to much higher levels as investors continue to diversify their portfolios in precious metals as equities are just too volatile and directionless right now.  Gold finished US trade sharply higher by 1.65% at $1,713. We are not the usual bulls who start to rant when positions go our way and we have actually stayed bullish for this ride lower clearly stating that prices can only move higher in the next 12-24months as uncertainty remains evident and as debt problems plague the world. Last night was very positive not only for commodities but also for currencies, apart form the Euro, and equities which rallied sharply. Gold has now broken through key resistance at $1,711 and we now look for a target of $1,735 initially and then $1,750 which is major resistance. Intra day today we expect further gains to target last nights high at $1,720/21 before any selling pressure returns. Support is solid at $1,700 and we expect this level to hold and provide another good buying opportunity.

AUD/USD continued to find initial support around 0.9835 during the European morning and once the risk sentiment improved with Gold going well bid the flow into AUD was well noted with the price jumping into the 0.9900 after easily breaking above the Asia 0.9885 highs.  The short squeeze on the back of European rumours was enough to catch out the new shorts with the pair making a US morning top at 0.9975.  The pair was weighed down by the rumours being denied and once the US market was left to itself the selling returned with the idea that the risk off tone will return shortly. By the end of the US session the pair is closing at yesterdays’ Asia session top of 0.9885. Again there is no local data and with the positive jump in risk sentiment a bounce back to the US morning top can’t be ruled out. However, a dip below the new support line could have the bears quickly in control but seeing something sub 0.9815 is unexpected for today. Topside selling between 0.9975 and parity should be more than enough to cap bounces!

 

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