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Currencies AUD Market Outlook for January 23, 2012

Recap of the Latest Global News
By Cory Vi & Andrew Su on Jan 23, 2012
After rising to almost 1.3000 during the Asian session on Friday, it was one way traffic for the EUR in Asian trade. The common currency failed to hold onto gains despite the Institute of International Finance, the lobby group representing creditors negotiating with the Greek government, releasing a statement saying that “the elements of an unprecedented voluntary private-sector” accord are coming into place. An agreement will be vital and is a key milestone for Greece to receive further financing aid before it faces a EUR 14.5 billion bond payment in late March. However, the EUR is now staging a rally as European finance ministers meet in Brussels to discuss new budget rules and the Greek debt swap plan.
The Greek debt accord is by no means finalised as the terms for an agreement to swap old bonds with new 30 year securities which may pay coupons as high as 4.75%  have yet to be agreed. Furthermore, hedge funds holding Greek bonds may not accept the deal as they may look to a more imminent finalisation of their exposures by looking to trigger the payments from credit default swaps. At the same time Greek officials are also meeting with the ECB, EC and IMF, the “troika” on a new EUR 130 billion financing for the nation. Despite all the event risk in the markets, the Australian dollar continues to climb recording more highs against the EUR. It is now trading above 1.0525.
Equity markets in the US rose for the third consecutive week on continued better than expected economic data releases and good corporate earnings reports and the S&P 500 closed more than 2% higher for the week  with good earnings from Goldman Sachs and eBay countering fears over Europe. The Chinese New Year celebrations will see many markets in Asia closed this week. The Nikkei closed flat while the ASX 200 lost 0.34%. European bourses are mixed mid session with the DAX down 0.6% while the FTSE is higher by 0.25%. The markets continue to oscillate around more positive data out of the US while investors remain wary over the Greek debt negotiations.

Commodities News


Commodity prices fell on Friday led by a decline in crude and copper futures and the CRB index closed 2.05 points lower at 309.91. During the Asian session, WTI crude stabilised at $98.40. Precious metals continued to rise with gold higher by 0.58% to $1,674 while silver surged more than 2.5% to $32.50. Soft commodities were broadly higher while copper gained 0.55%. This week we have the New Year holidays across Asia.


Gold moved modestly higher in offshore trade as the USD weakened and as investors continue to push capital reserves into precious metals rather than equities for now. We saw a break out in Silver which dragged gold prices higher on the night but gold did underperform by the end of the session. Gold finished US trade stronger by 0.55% at $1,664. The rally of late has continued into the new year and we are seeing a very bullish setup In gold prices as sil-ver starts to play catch up which is a good sign. Gold prices are starting to top out in the short-term but if we can see a push through $1,670 and more importantly downtrend resistance at $1,683 then much higher prices will be seen early this year. Resistance at $1,700 remains our first real target and then $1,800. Support re-mained in tact above $1,640 on Friday so short-term stops should be placed just below this level for now. Only back below $1,625 would we become sidelined.


FX News





EUR/USD started the morning in Australia (8am AEST) with a 70pip drop before taking the rest of the day taking back the losses.  Initially the market was slightly disappointed with the outcome of the Greece – Private Creditors negotiation citing that they have reached the limit of the losses they could concede, leaving the EU and IMF to take the next step.  Subsequently traders saw slight optimism with the European Finance Ministers’ meeting on Tuesday, waiting for yet another piece of ‘good news’.  Also EUR/USD opened in London positively ahead of bonds auctions from France and Germany today.  With the short-term bullish momentum in play, EUR/USD may test 1.3145 (Jan high and Oct 2010 low) this week before the correction is complete.  Initial support is seen at 1.2870.





With China, Hong Kong, Singapore, South Korea, Taiwan Malaysia and Indonesia closed for the Lunar New Year, USD/JPY saw a sleepy range of 76.91 to 77.07 during Asian Time. Mostly likely we may see  the same range for London and New York given the market is eyeing BOJ rate decision tomorrow.  Traders anticipate no change from 0.1%.  Short-term technical suggests USD/JPY may retrace back towards 76.93 (50% fib); 76.84 (38.2% fib) since flag pattern disappointed the continuation pattern last Friday during NY time and broke on the downside.  On the top side, resistance still remains at 77.34 (this year’s highest level so far).




AUD/USD dipped to test our expected pivot support at 1.0375 during the European morning with no follow through selling coming, as the market continues to show clear signs of being still overly short. The intraday bulls saw this as well as they drove the price higher. The break above 1.0450 did have us worried about the 1.0500 level giving way easily but if it weren’t for a heavy Euro, Aussie could have closed the week towards 1.0600 by the look of the price action. Talk of the BIS selling AUD above 1.0450 helped slow the rally and with that the price closed the week bid at 1.0470. Early Monday morning selling of Euro has weakened the AUD slightly. We expect that the local markets will target option strikes and stops above 1.0500 before the price follows the weaker majors. Intraday traders this could be leading to a great opportunity with a sharp crack of 1.0500 leading to a spike to 1.0520 before dumping back below 1.0500 and heading towards 1.0450. Watch Euro and Sterling for leads on the bearish tone!


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