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Currencies AUD Compass Directions Afternoon Report Tuesday, 13 December 2011

Concerns over credit rating warnings from all the major ratings agencies in response to the latest European Union summit continues to impact negatively on investor sentiment. Tonight, the European Financial Stability Facility will auction as much as EUR 2 billion in 91 day bills while bond auctions in Greece, Belgium and Spain will be closely monitored by investors. The reaction of the credit markets to the latest European accord will be vital to the survival of the EUR. There is increasing speculation that France will lose its AAA credit rating as early as this week. The common currency is closing the afternoon at 1.3190 after trading as low as 1.3160.

Business confidence in Australia for the month of November was largely unchanged as the worsening crisis in Europe offset the first cut in official interest rates in 31 months by the Reserve Bank. The business conditions measure which is indication of hiring, sales and profits rose to 1 from 0. UBS have released a report that forecasts zero growth in export shipments out of China next year as the euro zone enters a recession and the global economy slows. The South Korean Won has fallen for the fourth consecutive day while the Australian fell peri-lously close to parity trading as low as 1.0029 before an afternoon recovery.

Equity markets across Asia followed US stocks lower. The MSCI Asia Pacific has lost 1% with four shares falling for every one that rose and has lost 17% this year. The Shanghai Stock Exchange Composite Index fell for the fourth day losing more than 1.3%. The Hang Seng is lower by 0.87% to 18,414 while the Nikkei lost 1% to 8,568. The ASX 200 has closed 1.4% lower at 4,193 as investors braced themselves for mass credit downgrades across Europe. BHP and Rio Tinto were down by 2% while financials and energy stocks were all sold down.

Commodity prices have stabilised after the big falls overnight. WTI crude prices have firmed slightly, near two week lows, up by 0.07% to $97.84. Precious metals were mixed with gold lower by 0.51% to $1,659 while silver gained 0.51% to $31.16. Soft commodities were largely unchanged while copper fell another 0.32%. Overnight we have the release of the high impact UK CPI, German ZEW Economic Senti-ment, US Retail Sales and the FOMC Statement.

GOLD continued to the downside in Asia today as technical support levels were taken out in the short-term and this lead to stops being triggered as liquidity remains patchy going into the holidays season. Equities failed to find any direction and the USD consolidated leaving commodities
with little direction on the day. Gold traded $1,650-68 range and finished the session weaker by 0.50% at $1,656. Another bad day for gold as stops were triggered in early trade but losses were limited by support at $1,650 on the day. Prices still look heavy but moves are being exacerbated by poor liquidity. The negative news form the rating agencies has left markets with only one way to go right now but a bounce looks to be on the way and if we see some positive data tonight then we could be in for a big bounce. We have to remain sidelined for now and we are not turning short as we feel that this move is way overdone and could be reversed just as quickly. Having said this, a break of major support down at $1,585/$1,600 is definitely a bearish move and we would turn bearish and potentially get short. We are currently just moving back towards trend support and no bigger picture support levels have been breached but the ST picture is definitely weaker. Support sits initially at 41,650 and lower at $1,635. A break of the latter and we consider getting short for amove back to $1,600. Offers are building at $1,675 with a break here suggesting a bottom and a move to $1,690/$1,700.

AUD/USD opened the Asia session near 1.0070 after having bounced off the 1.0050 support level. Stops then began to build just below this support level. However, the NAB release was the same as previous but the Housing Starts dropped to –6.8% with last quarters also being moved lower. The break of 1.0050 saw stops hunted with the price managing to reach the start of the solid buying ahead of parity. The recovery from the 1.0030 low gained pace during the afternoon with the price closing the day just below the start of the 1.0100 offers.  Again, it’s hard to know what we are in for during the European and US sessions but once a solid move starts in the Euro or Sterling the AUD will likely follow. We still favour the downside but if 1.0110 does manage to break the short covering rally will likely continue.  However, 1.0160 will be a hard level to break.

 

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