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Currencies AUD Compass Directions Afternoon Report Friday, 16 December 2011

The better than expected economic data out of the US overnight has spurred gains across Asian markets today. Indications that the world’s biggest economy may be finally recovering from the global financial crisis has given investors a much needed distraction from the European debt crisis. Comments by the IMF’s Lagarde that the cur-rent European crisis is reminiscent of the turmoil in Europe in the 1930’s that lead to the second World War have been largely ignored by investors. Furthermore, ECB President Draghi said there is no “external saviour” for countries that do not implement structural reforms and that the ECB’s bond buying program is not limitless. The EUR has firmed in trade today to trade as 1.3046.

In other positive news, Singapore’s exports exceeded analyst forecasts while Indonesia has regained an investment grade rating from Fitch Ratings for its sovereign debt after losing it during the Asian financial crisis. The reduc-tion in risk aversion has seen the USD weaken across the board as the demand for safe haven assets fell. The AUD has made strong gains to trade closer to 0.9900 after falling as low as 0.9876 overnight.

The MSCI Asia Pacific Index is higher by 0.5% paring a 2.5% loss for the week. The Hang Seng is higher by 0.61% to 18,136 while the Nikkei has gained 0.43% to 8,413. The ASX 200 is closing the day 0.45% higher at 4,159 and breaking a three day losing streak with shares such as Coca Cola rising 1.5% for the day and CSL gain-ing 1.1%.

Commodity prices have firmed ever so slightly in trade today. WTI Crude is flat at $93.90 after having fallen al-most 6% in the last week. Precious metals have finally firmed after falling off a cliff earlier in the week. Gold has gained 0.41% to $1,584 while silver rose 0.26% to $29.35. Soft commodity were relatively flat while copper has gained 1%. Overnight we have the release of the high impact US Core CPI figure and ECB President Draghi speaks.

GOLD continued to recover recent losses in Asia trade today as equities pushed higher on the back of better data in the US last night and short covering going into the weekend. The AUD pushed firmly higher back towards parity but the Euro remained under pressure which capped any big gains through resistance on the day. Gold traded in a $1,569-87 range and finished the session stronger by 1.40% at $1,586. Gold is still consolidating after recently heavy selling and now that we are seeing some consolidation above major support this should entice fresh buying interest to return. Hedge funds have been unwinding longs as stops were triggered and real demand has not yet returned but it looks as this may change tonight and next week if equities settle and the USD gives back some of the recent gains. We have seen this before but in this situation we must see the Euro find some support to push commodities higher as traders and investors are not focusing on the US and improving data right now and rather on Europe. We turn bullish in the ST as we see bullish divergence and a bit of a base forming above key support at $1,532. A clear break above $1,595 and we should be headed back towards $1,642. Back above here and we are MT bulls again. We remain bullish fundamentally but have to remain sidelined and cautious for now. Support at $1,560 should hold firm for now.

AUD/USD opened the Asia session down towards 0.9915 after having fallen off the US session highs at 0.9990. And in a move that has been a little bigger than we expected the pair has recovered most of the lost ground in a very slow and painful incline to see out the afternoon with the price at 0.9974. The lack of liquidity and interest in the markets has helped the bulls to take control of the markets.  There is not a great deal on the data front for the markets but for the US Core CPI m/m release! Expectations are a for the previous 0.1% result to be correct again and whilst the market is clearly in risk off mode we can’t see the current bounce continuing any higher than 1.0100 at present. However, there have been crazier things in the market recently and with the very low volume nothing can be ruled out. Talk of stops above 1.0055 could easily become a target as the bearish side of the market out weighs the bulls like 3 to 1 at present.

 

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