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Currencies AUD Compass Directions Afternoon Report Thursday, 15 December 2011

The lack of progress in Europe and a very lukewarm reception from investors to the latest summit accord continue to weigh heavily on the markets. The continued rise of peripheral Eurozone bond yields in the credit markets has seen the EUR struggle to regain the 1.3000 handle today as it traded as low as 1.2978 today. Japan’s Tankan survey of manufacturer sentiment fell more than expected while the HSBC Flash Manufacturing PMI once again indicated contraction. USD/GBP looks likely to test 1.5400 while USD/JPY continues to hover above 78.00.

There is increasing speculation that the Swiss National Bank will announce an increase in the EUR/CHF peg to 1.2500 or even as high as 1.3000. The is also speculation that the SNB may also cut interest rates to below zero in their monetary policy statement due tonight. If either or both of these scenarios play out the USD/CHF rate will move higher. South Korean department store sales dropped for the first time since 2009 and the Won fell. The Australian dollar is closing the afternoon lower at 0.9875.

Asian stocks fell for the third day with signs of slowing growth in both China and Japan further negatively impacting on investor sentiment. The MSCI Asia Pacific is down more than 1.5% while the Shanghai Composite has lost ground for the sixth consecutive day losing more than 1.8%. The Hang Seng has lost 1.85% to 18,014 while the Nikkei has lost 1.11% to 8,424. The ASX 200 has closed 1.09% lower at 4,144.90.

Commodity prices consolidated after the rout overnight. WTI Crude has regained the $95.50 level after rising 0.63% in trade today. Precious metals remain very soft barely bouncing from their spectacular falls overnight. Gold is struggling to hold above $1,570 while silver continues to spiral lower losing 0.3% to $28.80. Soft commodities have managed modest gains while copper gained 0.18% after plummeting overnight. Overnight, the economic calendar will provide many opportunities for traders looking for data related moves in the market.

USD/JPY continues to trade around the 78.05 level as we end the very uneventful day despite the Tankan report which was once a large market mover coming in below the expected –2 at –4, not really having any effect of the price action. The close offers above the current level have warned off any potential squeeze higher and well that’s about it for the whole 8 hours. Despite our bias towards a lower USD/JPY over the course of the end of the year and the first couple of months of 2012.  The pair could quiet easily bounce into the mid 78.00 as talk around the traps about stop loss  orders having been built up between 78.30 and 78.80 overt the last month or so could easily see the price gravitate towards this level. However, the signals are pointing to a return towards the 77.50 support in the shorter term but for now the movements are so small and if we are going to have a crack the capital would be better in a cross or another pair altogether!

AUD/USD has remained heavy today as the tone of the European and US session continues to play a major part in the Asia markets belief’s.  However, the overnight tone didn’t need to help towards bearish tone as the New Car Sales and MI Inflation expectations were both weaker than even our forecasts!  The price fell from the opening level of 0.9905 to end the day just above the new low set on this decline at 0.9880.  By the looks of the Asia market and the way the AUD is trading anymore weakness during the European or US session on the back of global economic fears will have the pair tumbling again. It doesn’t look a matter of if but when! On the charts we have been looking at the 0.9865 level as the next support and this hasn’t changed during the Asia session. Below here and we could see the pair into the 0.97’s in quick time. However, watch out for a short squeeze as the market does look a little oversold at present!


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