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Currencies AUD Compass Directions Afternoon Report Thursday, 8 December 2011

Markets eased on the eve of the European Summit that investors worldwide hope will finally produce a plan that will address and halt the European debt crisis. Investors have turned cautious as previous summits had promised much and delivered little. At the ECB Press Conference tonight, investors are expecting the bank to announce a series of measures to support the region including a rate cut of 0.25% to 1%. “Merkozy” are calling for a financial services transaction tax across the EU while the idea is facing stiff resistance from the Cameron government. The French and Germans will also be pushing for tighter budget controls and measures to increase fiscal uni-ty across the Eurozone. The EUR closes the afternoon near its lows at 1.3400.

Economic data out of both Japan and Australia put a dent in investor optimism . In Australia, the number of people employed fell by 6,300 compared to median expectations of a gain of 10,000 jobs. Japanese machinery orders, an indicator of capital spending, fell almost 7% from the previous month. This was a shock result given that the median forecast was for a 0.5% increase. The Australian dollar fell to as low as 1.0232 after the release of the employment data while the JPY traded in a very tight range of less than 15 points.

Equity markets fell with the MSCI Asia Pacific down 0.9% with more than 3 stocks falling for every one that rose. Jitters over the Euro-pean summit have seen profit taking across the region’s bourses. The Hang Seng is lower by 0.67% to 19,111 while the Nikkei has lost 0.6% to 8,669. The ASX 200 has closed 0.27% lower at 4,281 led by losses of more than 1.5% in the energy sector while telecommunica-tions outperformed rising more than 0.6%.

Commodity prices have eased as asset prices have generally fallen in trade today. WTI has firmed by 0.11% to $100.60 after falling over-night due to increasing stockpiles. Precious metals were largely flat as gold finishes the Asian session at $1,742 and silver consolidated at $32.65. Commodity prices continued to ease while copper is higher by 0.2%. Tonight we have high impact data out of Europe and the US including the ECB and BoE rate decision and US Unemployment Claims.

GOLD was very quiet in Asia today after good gains last night in the face of weakness in equities and a rise in the USD on the back of safe-haven buying.  Losses were minimal on the day and were only related to profit taking rather than anything major. Support levels held throughout the session and we have yet to see a test on major resistance which we wouldn’t expect to see in the thin Asian trading conditions. Gold traded in a $1,734-43 range and finished the session weaker by 0.20% at $1,737. Little to add to this mornings report as we have generally seen very quiet trade in Asia at the moment on the lead up to the EU Summit and all the headlines are coming out of Europe and the European trading hours right now so market movements are contained in Asia. Support at $1,735 held perfectly today and we have seen a small bounce off the level before European traders walk in the door.  Offers between $1,745-52 are going to be hard to break right now but we should get through here by the end of this week and once stops are triggered above here we should quickly move back to $1,800.  Our strategy remains the same and we are a buyer of dips towards $1,727-35 with stops under $1,700 targeting $1,800. This may take a week but this is our strategy for now.

AUD/USD opened the Asia session with the pair having a bid tone thanks to the growing expectation that the Thursday and Friday meetings in the Eurozone will be not only good for the risk sentiment but also the global growth story. However, our fear that the Australian new job creation numbers wouldn’t reflect this was correct with the number coming in at –6.3K against the expected +10.3K.  The price quickly fell to 1.0235 but as the rest of the market remained idle the pair has recovered with cross flow doing most of the work.

We are surprised despite the negative Australian data that the Euro and AUD aren’t higher!  Could this be a bad sign if there was to be any negative announcements with the reports already starting to filter about the sovereign central banks planning for life after the Euro currency. The longer term trend still needs 1.0155 to break below we see the market turning bearish again in the longer term.


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