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Currencies AUD Compass Directions Morning Report Wednesday, 30 November 2011

European Finance Ministers admitted last night that the plan to expand the European Financial Stability Fund to $1 trillion that was announced only last month will be too difficult to achieve. They are now exploring ways to involve the International Monetary Fund and the European Central Bank to stem the debt crisis. The latest proposals become increasingly radical with calls for the ECB to lend finds to struggling nations through the IMF so that the central bank does not contravene rules that do not allow it to lend directly to governments. The 17 Eurozone finance ministers must now come up with the next version of the “comprehensive” plan to save Europe from financial armageddon. The quote of the day goes to the Spanish Finance Minister who said about the EFSF, “It’s a better option not to set a limit and simply to say it must be as much as possible.” It appears that the ministers are certainly doing as much as they can to resolve the debt crisis. The EUR continues to defy gravity to open the Asian session above 1.3320.

In the United States, consumer confidence rose by the most since 2003. In conjunction with the strong Thanksgiving retail sales, the two factors are giving analysts hope that the US may yet escape another recession. Americans became more optimistic about jobs whilst members of the Fed continue to air differences of opinion over the likelihood and efficacy of further quantitative easing. US consumer confidence rose to 56 from 49.9 in October while Fitch revised its outlook for the US credit rating to negative. The Australian dollar continues to rise strongly from sub 0.9700 levels reached last week to catapult above parity where it sits this morning.

Equity markets made modest gains overnight as risk appetite improved with better than expected US data continuing to support markets. The S&P 500 rose 0.22% to 1,195. American Airlines have entered Chapter 11 and their shares lost 85%. Facebook may raise $10 billion in an initial public offering which will value the social networking website at more than $100 billion. JPMorgan and Chase released a report that outlined how the European debt crisis will offset improving conditions in the US to contain the S&P 500 to a 1,100 to 1,350 range. Earlier in Europe, the DAX rose 0.95% to 5,800 while the FTSE was higher by 0.46% to 5,337. Asian equities may come under pressure as S&P have just cut the credit ratings of a number of American banks including Bank of America, Goldman Sachs and Citibank.

Commodity prices rose as risk sentiment increased amid climbing consumer confidence in the US. WTI crude has climbed 1.6% to trade at $99.80. Precious metals were mixed with gold higher by 0.52% to $1,723 while silver eased 0.64% to $32.05. Soft commodities were mixed with wheat rising almost 4%. Copper is higher by 1% and the CRB index has closed 2.5 points higher at 310.46. Today, we have the release of Japanese Manufacturing and Industrial Production data and the Australian private capital expenditure q/q release.

GOLD posted modest gains in offshore trade as a weaker USD supported the precious metals space and a small rise in equities also helped gold to push higher on the night. We saw much better consumer confidence data in the US but we also saw tensions in Iran escalate with an attack on the British Embassy which will only add further upside pressure. Gold finished US trade marginally higher by 0.25% at $1,716. Gold is grinding higher slowly at the moment but the bullish pressure is building as tensions in the Middle East rise and uncertainty in the Euro region increase. We are also seeing solid economic data in the US support as equities stabilize and the USD weakens. We have continually said that gold will only rise when markets settle and volatility declines and we are now starting to see this and thus we are seeing a rise in gold prices. Ultimately we didn’t really go anywhere last night and resistance at $1,721 remains in tact for now. A break above here should trigger some small stops and open the door to $1,735 and then $1,750. We remain a buyer of dips towards $1,700 with stops below $1,675. Intra day range should be $1,711-$1,727 with an upside bias as bank downgrades and Middle east tensions support.

AUD/USD continued to benefit from Fitch’s upgrade to AAA and for the first time ever Australia carries the highest rating from the big three rating agencies. The price initial ran into offers at parity and these looked to be enough to cap the rally but stop hunting and new shorts again getting squeeze saw the price spike to 1.0075.  The jump ran out of steam as the Euro backed off with ECB investment not meeting the full 203 bio target. The retracement on the back of new buyers took the price back to settle just above parity during the US afternoon and we end the day still here at 1.0030.  Private Capital Expenditure is expected to rise to 8.2% for the past quarter and HIA New Home Sales are to be released. The MACD in the hourly study has turned over. This will lead us to again watch the market with the outside chance that there could be another short lived move higher today. A bounce and rejection of 1.0075 will see us sell into the strength short term.


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