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Currencies AUD Market Outlook for February 7, 2012

Recap of the Latest Global News
By Cory Vi & Andrew Su on Feb 7, 2012

Markets eased yesterday as the Greek government continues to struggle to make the necessary austerity budget cuts to qualify for more financial aid and avoid an ever more likely default. Pressure is mounting on the Greeks to meet the conditions of the EUR 130 billion bailout as PM Papademos negotiates into the second day with the so-called troika. Chancellor Merkel made her frustrations clear by saying “I can’t understand why we need a few more days. Time is running out.” The French and Germans are coming up with increasingly ‘creative’ solutions to the Greek problem by yesterday proposing the setting up of an account for Greek interest payments to ensure that lenders are paid. We aren’t sure that guaranteeing interest payments that are already highly discounted on junk debt will do any good. The EUR is largely unchanged during the Asian and is trading at 1.3120.

Nicolas Sarkozy said at a meeting in Paris that allowing Greece to “go bankrupt is not an option.” It is messages like this that undermine the process that the Europeans are attempting to undertake. Leaders need to let the Greek government know that bankruptcy is an option if they do not comply with the conditions of the bailout package. If bankruptcy is not an option than the Greeks will simply continue to flout agreements in an attempt to get a better deal while the relatives continue to support the black sheep of the family at all costs. Today, the Reserve Bank of Australia surprised investors by keeping its benchmark rate unchanged at 4.25%. The market had priced in a 0.25% cut and the decision saw the AUD rise sharply from just above 1.0700 before the announcement to as high as 1.0825.

US equities eased yesterday with the Dow Jones falling from almost 4 year highs on renewed concerns over the Greek refinancing and debt swap deal as a planned meeting of Greek leaders was delayed as a joint response had yet to be agreed upon. The S&P 500 was largely unchanged at 1,344. Asian stocks closed lower today while European bourses are down 0.5% in mid-trade.

 

Commodities News

 

Commodity prices has eased very slightly yesterday with the CRB losing only 0.02 points to 314.20. They have continued to fall in trade today. WTI crude has fallen again on renewed Greek concerns and expectations of rising inventories, losing 0.5% to $96.40. Precious metals also losing ground with gold falling 0.2% to $1,722 while silver lost 0.7% to $33.50. Soft commodities have been mixed in trade while copper has lost 1%.

 

GOLD

 
GOLD Traded in a range of $1,711 to $1,738. We had expected a move lower in gold yesterday and our move to a neutral stance on gold yesterday was well timed as the metal had a rare down day. Within the last few days, we have seen gold prices react negatively to both good news in the form of the US employment data and bad news in the form of the continuing Greek tragedy. When will gold prices behave and act as they have in the past like any good safe haven asset? We believe a number of factors are now playing out which will see gold soon spike towards $2,000 by mid year. For now we maintain our neutral short term stance due to a number of significant risks in the market this week which may have an entirely unpredictable effect on gold. Barring any further bad news out of Europe, look for a tight range in trade today between $1,710 and $1,730. We expect that gold will retest support just below $1,710 today but that this level should hold.

FX News

 

EURUSD

What was said about the euro yesterday, the day before and before that is quite similar to what is going to be said here today about Greece and the Eurozone Officials.  However EUR/USD has broken the 1.3076 resistance level yesterday making this new support level.  It appears that traders are going long in the hope that Greece will come through and if it doesn’t, Germany and France may come to rescue because the other alternative might be too messy to deal with.  We wouldn’t want to get carried away with long euro just yet but rather prefer to sell on rallies.  We still think 1.3230 is still a galaxy far, far away but if we get there in light year or close to there, go short with tight stops..

 

USDJPY

The jaw-boning seems to be working for the Ministry of Finance and Bank of Japan as USD/JPY drifts higher today towards the 76.80 level.  Again between 76.50 and 76.80 is where the market is comfortable for the moment.  While the market contemplates its next move, it was timely of the Finance Ministry to release data today showing Japan’s unannounced or ‘stealth’ intervention in the first four days of November 2011 totaling 1.02 trillion yen.  This was after selling a record 8.07 trillion yen on Oct 31 (which they made public at the displeasure of the US) when yen reached a post WWII low of 75.35 against the USD.  One Official agreed that the unannounced intervention was the most effective strategy to weaken the currency.  Food for thought if you see USD/JPY rally for no apparent reason.

 

AUDUSD

 

AUD/USD was initial taken lower during Monday morning trade by the developments regarding the next round of funding for the Greek’s, which looks a little shaky and then the weaker than market expected Australian Retail Sales numbers. We were leading to the downside on the number due to the heavy discounting from the department and retail stores leading into Christmas, which is something which hasn’t been seen for years. Anyway, the price continued to remain heavy during the European session and managed to find a low of 1.0680. The support we reported yesterday at 1.0675 was more than enough to hold up a slow moving market. The price recovered during the US session on nothing much than position squaring and a better bid S&P500! Today will be all about the RBA with almost every economist picking a 25bp cut, whilst we favour the cut we are leaning towards the almost unheard of move by the RBA of 50bps. We have changed our bias ahead of time as we like the look of the charts for a return towards 1.0600 even without the RBA.

Compass Global Markets

 

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