Today is Sun, June 25, 2017 7:15:36 GMT
RSS Follow Us Follow us on Twitter Friend us on Facebook
Currencies AUD Compass Directions Morning Report Friday, 9 December 2011

The European Banking Authority (EBA) overnight released a report that showed that European banks would need to raise almost EUR 115 billion in new capital as part of the European rescue plan that involves write downs on Greek debt amongst other measures. Out of that total, the EBA estimated that Banco Santander alone would require EUR 15.3 billion while Unicredit SpA would require EUR 8 billion. Only two months ago the EBA had estimated that banks would require EUR 106 billion. The EBA which runs stress tests on banks annu-ally failed 8 banks in July and will now postpone next year’s test to allow banks to finalise capital raisings. The EUR lost ground overnight.

As expected, ECB President Mario Draghi cut interest rates and offered banks unlimited cash for 3 years while stopping short of announc-ing more bond purchases. The omission surrounding further asset purchases weighed heavily on the markets and in combination with the EBA announcements of increasing capital shortfalls in the European banking system has seen risk aversion rise overnight. In the prelude to the EU Summit, EC President Barroso called on leaders to set aside differences and work towards more fiscal discipline.

Equity markets were dragged lower once again by news developments out of Europe. Not surprisingly banks were hardest hit overnight with Morgan Stanley and Citigroup falling almost 7%. However, there was some good news with fewer than expected unemployment claims filed in the US last week. The optimists believe that the figures show that the US job market is in recovery mode. The S&P 500 has closed 2.11% lower at 1,234 continues to find resistance at the 200 day moving average. Shares in McDonald’s bucked the trend with with sales growth driven by strong demand in China and Japan. Earlier in Europe, the DAX sank 2% to 5,874 while the FTSE fell 1.14% to 5,484.

Commodity prices fell as the ECB dampened speculation that they would increase asset purchases. WTI Crude fell the most in 3 weeks losing 2.15% to $98.34. Precious metals fell with gold losing 1.9% to $1,711 while silver gave away 3% to trade at $31.65. Soft commodities were broadly lower while copper lost 1.7%. The CRB has lost 2.12 points to close at 307.95. Today we have the release of Japanese GDP figures and CPI, PPI, Industrial Production and Retail Sales out of China.

GOLD fell sharply in offshore trade as ECB President Draghi ruined what was ultimately looking like a good session as the ECB cut rates by 0.25% and US unemployment claims fell which saw markets rally. The announcement by the ECB that it is not planning to buy more bonds to spur growth in the region lead to heavy selling in all risk assets and this included gold as the USD gained for the first time in nearly a week and equities crumbled. Gold finished US trade weaker by 1.80% at $1,713. Last night was not a good night for global financial markets as European leaders and central bankers continue to say things that we just do not want to hear right now and no matter what, they should be spinning positive rhetoric so that investor sentiment improves not deteriorates. Gold is not just a safe-haven asset so when we see nights of risk reversal gold will be hit as there is a race to liquidity. We remain bulls in the bigger picture but it is only prudent to be cautious at these levels. We do remain a keen buyer of dips though and major shortterm support at $1,700/02 is on focus and if this level holds in early trade today we would consider buying with stops at $1,695. Below the level $1,665/75 comes into focus as the last level of support. Offers are strong towards $1,711 with a break opening a move to $1,720.

AUD/USD rallied as risk sentiment improved during the European session as the ECB cut rates by 0.25bps and lifted the inflation outlook for the 2012 year. AUD spiked on the positive news to 1.0380 as weaker stops caused a short squeeze across the markets. However, the tone was to change quickly as ECB president Draghi spoke about the markets desire to see ECB bypassing the IMF and being the lender of last resort. However, when he signalled that the ECB wouldn’t take that role and that they would not lend to the IMF the risk sentiment changed quickly with the new bulls getting crushed as the AUD collapsed to be closing the day over 200 points lower than the day’s highs. With it being a data free Friday and the markets having a risk off tone thanks to the overnight events the AUD could finally make its way back towards parity by the end of the day. There will be medium level support between 1.0075 and 1.0125 but a move to 1.0055 is the next big target.

 

DISCLOSURE AND DISCLAIMER
Compass Global Markets Pty Ltd (“Compass Global Markets”) ACN 144 657 885, Authorised Representative No. 377377, is a Corporate Authorised Representative of Calibre Investments Pty Ltd (Australian Financial Services License No. 337927). Please refer to the Financial Services Guide which is available through our website www.compassmarkets.com for more information regarding the financial services that we offer.
All references to prices, amounts and currency are in Australian dollars unless otherwise noted.
This report is provided for Australian residents only and is not intended for use by residents of any other country.
GENERAL ADVICE WARNING: The advice provided in this report has been prepared without taking into account your particular objectives, financial situation or needs. You should, before acting on the advice, consider the appropriateness of the advice having regard to these matters and, if appropriate, seek independent financial, legal and taxation advice before making any financial investment decision.
This report has been prepared for the general use of Compass Global Markets clients and must not be copied, either in whole or in part, or distributed to any other person. This report and its contents are not intended to be construed as a solicitation to buy or sell any security, product or asset, or to engage in or refrain from en-gaging in any transaction.
Compass Global Markets does not guarantee the performance of any investment discussed or recommended in this report. This report and the information used within may include estimates and projections which constitute a forward looking statement that express an expectation or belief as to future events, results or returns. No guarantee of future events, results or returns is given or implied by Compass Global Markets. Such statements are made in good faith and based on reasonable assumptions at the time of publication. However, such statements are also subject to risks, uncertainties and other factors which could cause actual results to differ substantially from the estimates and projections contained in this report or otherwise provided by Compass Global Markets.
Any information referencing past performance is not indicative of future performance. All information in this report has been obtained from sources believed to be accu-rate. Compass Global Markets does not give any representation or warranty as to reliability, accuracy or completeness of information contained in this report and therefore all responsibility is expressly disclaimed, whether due to negligence or otherwise. The information presented and opinions expressed in this report are given as of the date hereof and are subject to change without notice. We hereby disclaim any obligation to inform you of any changes after the date hereof in any matter set forth in this report.
Global Compass Markets, its affiliate and their employees may hold positions in the financial products, or securities or derivatives of, in the companies referred to in this report from time to time.
Analyst Certification: The views or opinions expressed in this report accurately reflect the personal views of the analyst(s) and no part of the remuneration of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this report. Any views or opinions expressed are the author’s own and may not reflect the views or opinions of Compass Global Markets unless specified otherwise.

Recent posts by forexnews