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Currencies AUD Market Outlook for February 6, 2012

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 6, 2012

Markets rallied on Friday after the release of much better than expected US employment data. The non-farm payrolls data showed an increase of 243,000 in January which was well over the median economist’s forecast of 140,000. Furthermore, the unemployment rate dropped to a three year low at 8.3%. Market analysts, who were extremely bearish at the beginning of the year are now making grand announcements such as ‘the stars are aligning’ to push markets higher. The contrarian in us is now extremely cautious and we expect the USD to make a comeback after losing ground last week as the better than expected data has seen the likelihood of further quantitative easing fall. The EURO has retraced lower during the European trading session to as low as 1.3030 after opening in Asia above 1.3115.

In more sobering news, the situation is coming to a head in Greece with the government there expected to respond to the troika and demands by its international creditors for increasingly severe austerity measures within the next couple of days. It has become apparent that Greece is finding it difficult to come to an agreement with its creditors. The IMF has said that a worsening debt crisis in Europe could cut China’s growth in half. In China, Chinese Lunar New Year sales grew at the slowest pace since the 2009 financial crisis and a full 3% lower than last year at 16%. There are increasing signs of slowing consumer spending in China which does not bode well for the increasing numbers of foreign retailers rushing into the Chinese market. The Australian dollar has eased off highs at 1.0796 on Friday to fall more than a cent to as low as 1.0685 today.

US equity markets rose to their fifth weekly gain last week after the release of the much better than expected US employment data. The Dow Jones is now trading at its highest levels since May 2008 as financial and technology companies gained more than 3%. The S&P 500 closed 1.45% higher at 1,344. Stocks in Asia were largely higher while the continuing Greek tragedy has seen European bourses trading down about 0.5%.

 

Commodities News

 

Commodity prices spiked higher on Friday with the CRB index gaining more than 1% to close at 314.22 but it has been one way traffic in the opposite direction today. WTI Crude oil continues to weaken down 1.1% to $96.70. Precious metals continue to fall with gold losing 1.2% to $1,719 while silver fell 1.1% to $33.35. Soft commodities were broadly higher while copper has lost some of its strong gains on Friday to lose 1.2% today.

 

GOLD

GOLD fell despite the US losing ground on Friday after the non-farm payrolls data release. After failing to hold above $1,750 we now turn neutral gold in the short time as we expect prices to consolidate to range trade this week. The failure of gold to break higher on Friday despite a number of factors favouring such a move has us approach trading in the metal with caution this week. The move from $1,630 critical sup-port to $1,750 has given investors an opportunity to reduce long positions for now to re-evaluate market developments. Gold’s trading range on Friday was $1,723 to $1,763. The better than expected employment data may have had the effect of lowering the market’s expectations of further quantitative easing which is in turn seeing gold lose some of the gains we saw after the last FOMC statement where expectations of QE3 rose. Support at $1,720 held on Friday but if we see this level breached today we will turn bearish in the short term.

FX News

 

EURUSD

The euro continued to lose ground and it was mostly a one way affair in Asian trade today after reaching 1.3206 on Friday due to positive US NFP and employment data.  On London open the tune was the same but the rhythm and beat came from Greece.  The world is now waiting for Greece to respond to demands by the European Union, European Central Bank and International Monetary fund on economic measures, including wage cuts.  For the moment 1.3024 looks solid but very vulnerable.  One decisive piece of bad news might snap this support level like a toothpick sending it to 1.2826 in double time – a “default” should do it.  On the top side, while 1.3200 sounds like a galaxy far, far away now we think 1.3076 to 1.3123 will be a hard nut to crack.

 

USDJPY

After an impressive Payrolls data (+243k) and a three year low in unemployment rate (8.3%) on Friday USD/JPY is sitting comfortably above 76.50 for now.  The high for today so far has been 76.81 a smidgen above last Monday’s high but it failed to break 77.12 where we think it will face strong resistance.  On the down side, 76.50 looks well supported but if history does repeat we think the market will test sub 76 again and at the same time test the will of BOJ.  As a educated guess, we think the BoJ might pull the trigger this time if we see USD/JPY fall below 75.30.  For those who like to go with the flow, trading between 76.50 and 76.80 may be the go while the market treads water.

 

AUDUSD

 

AUD/USD was happy to continue the tone of the Asia session ahead of the US Payroll numbers during European trade, as the price ranged be-tween the 1.0675 lows and the 1.0715 tops. The better than expected numbers saw the risk sentiment rally take off with the commodity currencies being the flavour of the month. Jumping from below 1.0700 the price managed to reach into the mid 1.0790’s during the late US morning before profit taking and option protective offers took control. Warnings over Greek spending from the Eurozone leaders as taken some of the shine off Fridays rally as the pair is currently at 1.0744 after opening around 1.0775. Australian Retail Sales numb er are due for release during the late Australian morning with expectations of an improved 0.2% after the previous 0.0%. We remain to the bearish side on a result but heavy discounting by the major department stores of late could give us a positive number. Whilst the price remains above 1.0675 the bulls will look to be winning. Selling the break looks better for the bears at this stage.

Compass Global Markets

 

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