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Currencies AUD Compass Directions Morning Report Tuesday, 10 January 2012

In another case of history repeating itself, investors have once again got caught up in the fleeting optimism that seems to grip the markets every time there is a “Merkozy” Summit underway. As Chancellor Merkel and President Sarkozy discussed more ways with which they could save the EUR, the common currency bounced from its lowest levels since September 2010. The Euro also managed to bounce from its lowest levels against the Japanese Yen since December 2000 and the Dollar Index fell for the first time in 4 days. The leaders said that they may finalize the new European budget rule book a month ahead of schedule at the end of January and are looking to bring forward contributions to the bailout fund. The EUR opens the morning higher at 1.2760.

The Australian dollar remains under pressure trading below 1.0150 after the release of weaker than expected retail sales figures before a recovery instigated by a rising EUR. The weaker than expected retail sales figures have bolstered the case for another official rate cut from the RBA at its next meeting in February. The Swiss National Bank Chairman resigned after the disclosure of his wife’s currency trading activities and the Swiss France gained almost 0.5% despite its “unofficial” peg against the EUR. In what could be interpreted as either a bad or good sign for the US economy, consumer borrowing surged in November by the most in a decade as households took on more debt and banks increased lending. The AUD opens the morning as 1.0230 while USDCHF trades at 0.9500.

Global equity markets were once again mixed with European bourses falling while American equities held their ground. The start of the US earnings reporting season kicks off with the announcement of fourth quarter results from Alcoa. US companies finished 2011 with the slowest profit growth figures in two years as a slowing Europe impacted on companies with global sales. The S&P 500 has closed the session higher by 0.23% to 1,281. Earlier in Europe, the bourses continued to weaken with the DAX losing 0.67% to 6,017 while the FTSE incurred similar losses down 0.66% to 5,612. Italy’s largest bank, UniCredit, fell 13% as rights to buy its stock collapsed in their first day of trade.

Commodity prices were stronger led by a broad rally in soft commodities with the CRB gaining 2.04 points to 311.52. Crude oil weakened margin-ally by 0.3% to $101.26 as the concerns that Iran may block crude shipments through the Strait of Hormuz eased. The easing of geopolitical tensions may see WTI crude drift below $100.00. Precious metals were mixed with gold marginally lower at $1,609 while silver futures gained 0.76% to $28.90. Soft commodities were broadly higher lead by gains of almost 7% in cocoa futures. Copper eased 0.52%. Today we have the release of the high impact Australian Building Approvals and Chinese Trade Balance figures. Overnight we have Canadian Housing Starts and speeches by two FOMC members.

GOLD moved modestly lower in offshore trade as profit taking remains after the recovery from the lows over the holiday period and major short-term resistance continues to cap which is putting traders on edge as to wether or not we will see a break higher. Prices remained well supported and above $1,.600 as the Euro strengthened on the night and US equities posted small gains. Gold finished US trade weaker by 0.30% at $1,612. Consolidation is the only word that comes to mind in the precious metals complex right now as currencies remain pressured and Europe’s problems are not going away. It looks as though we will see a big move higher this year as fundamentals remain in tact but form a te4chnical view we need to see a breach through major short-term resistance at $1,640/42. Above here and $1,700 come back into play. Today, initial resistance lies at $1,627 will
cap with a breach targeting major levels at $1,642.  Support remains solid down towards $1,600/05 and presents a good buying opportunity with stops under $1,580 to start.

AUD/USD fell during the Asia session yesterday as the market’s expectations for the Retail Sales number were not met with Victoria suffering the most in November. However, the price didn’t last long below 1.0150 as the expected meeting between Merkel and Sarkozy gave a positive spin to the risk currencies on the improved Euro also. The jump back above 1.0190/00 offers saw intraday shorts squeezed with the price jumping to meet new offers at 1.0250. Since the European afternoon the price has remained between 1.0190 and 1.0240 as the North American equity market haven’t given any leads to traders. Australian Building Approvals is to be released during the late morning and with an expected recovery to 6.6% from last months terrible –10.7%, we could be in for a little sharp action. A solid number should lead to a short lived bounce which would be more about stop hunting than any else. We are looking to reset shorts if the pair manages to reach the high 1.02’s with stops above 1.0305 for safety.

 

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