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Currencies AUD Market Outlook for January 18, 2012

Recap of the Latest Global News

The markets continued to be buoyed by speculation that an easing of monetary policy in the world’s second largest economy, China, is becoming increasingly likely. Furthermore, strong data releases yesterday from both sides of the Atlantic and a fall in peripheral European bond yields aided the general risk-on environment. The German ZEW investor confidence index rose the most on record from minus 53.8 in December to minus 21.6 in its second straight rise. The EUR has surged to above 1.2840 after trading as low as 1.2734 during the Asian session after the IMF proposed a boost to its lending resources by $1 trillion.

The markets remain positive despite the World Bank cutting its global growth forecast by the most in three years. It forecasted that global growth would slow to 2.5% in 2012, down from an estimate of 3.6% in June. It predicted that the euro area may contract by as much as 0.3%. Germany has also cut its 2012 economic growth forecasts.

Pimco’s Bill Gross has weighed into the debate surrounding the role of credit rating agencies in the global financial system by saying that although some may argue that downgrades may not matter, that they may trigger a wave of selling by investors who are required to hold only the highest quality securities in their portfolios as a matter of regulation. In the UK, the GBP fell yesterday as inflation slowed to 4.2% from 4.8% in November and investors speculated that the Bank of England may introduce more quantitative easing before rising on the back of a surging EUR.

Asian equities rose in response to better than expected data releases on both sides of the Atlantic with the MSCI Asia Pacific rising 0.3%. The Nikkei rose 1% while the Hang Seng gained 0.3%. European bourses are higher by about 1% mid session as the EUR rallies on optimism surrounding Greece and a proposed increase in IMF lending resources.

Commodities News

Commodity prices rose on the back of a series of good data releases across China, Europe and the US yesterday. WTI Crude continues to gain rising 0.6% to $101.30 on a push by France to fast track sanctions against Iran. Precious metals consolidated with gold steady at $1,657 while silver gained 0.5% to $30.30. Soft commodities had a mixed session while copper gained 0.5% during the Asian trading session.

GOLD

GOLD continued to grind higher in offshore trade as rising equities and a weakening USD left only one way fro commodities to move on the night. China data yesterday triggered the gains seen last night and once we saw improved German sentiment and better than forecast manufacturing data in the US we continued to gain. We did see some profit taking late in the session as US equities paired some of the earlier gains after Citigroup reported weak earnings which pushed the USD higher. Gold finished US trade stronger by 1.50% at $1,655. Gold is not only a safe haven but is a highly demand related commodity and improving conditions globally coupled with the potential for easing in China should see prices rise further. USD weakness will only add to upside pressure but if we were to see the Euro post some gains then gold could be back at $1,800 before we know it. We have now managed to consolidate above support/resistance at $1,642 and should now grin towards $1,700. The next hurdle is resistance at $1,667 and above here $1,777 and then it is a free run to $1,700. On the downside, any losses from here should be limited by support down at $1,625 and closer in at $1,635.

FX News

EUR/USD 

A proposal by the IMF to increase its lending resources by $1 trillion and renewed optimism surrounding Greece has seen the EUR surge above 1.2840 in European trade after finding support at 1.2730 in Asian trade.  Stop losses were triggered on the break of 1.2800 but resistance at 1.2850 held firm.  The general downtrend remains intact and we expect a test of 1.2750 during the New York Session.  Expect a trading range of 1.2720 to 1.2830.

GBP/USD 
In the UK, a weaker than expected CPI figure and increased speculation about further quantitative easing by the BOE has seen the currency remain heavy in the past few trading sessions. The opportunity exists for a short EURGBP trade at levels above 0.8330 looking for a retracement back to 0.8280 in the coming sessions. We expect the EUR to resume its accelerated decline against the GBP. In the GBP, the main resistance remains at 1.5590 while support is strong at 1.5270. Overall the trend remains bearish and we expect a range of 1.5290 to 1.5390 in the New York session.
USD/JPY 
USD/JPY remains the range traders’ currency of choice as it stays within a 76.50 to 77.00 range with no signs to show that it will break out of this range. However, the expectations that the BoJ will intervene have consistently failed to quell JPY strength and we expect that a clean break of 76.50 will lead to a rapid decline to record lows as USD bulls rush for cover. For the New York session expect more of the same range. Sell on a break of 76.45.
AUD/USD

AUD/USD was almost the best performing currency on the globe during the last 24 hours as the positive climb started with the better than expected Chinese GDP data and the relationship to commodities and the talk of continued building in China propping up the Australian Dollar because of the need for our resources. The break above 1.0400 was a surprise.  However, after the better Chinese data we got the expected move above the 1.0370 pivot but we have to say 1.0450 was a little over extended.  Speculators were noted sellers towards the highs and have already proven that the markets remain unconvinced about the future direction. The gains were quickly given up with the price ending the US session back below 1.0370. Westpac Consumer sentiment and New Motor Vehicle Sales are due during the local morning and motor vehicles sales expected to improve we could see incorrect positioning. Car manufacturers have been heavily discounting so to pick the result looks harder than picking the winner in the races.

Compass Global Markets

 

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