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Currencies AUD Compass Directions Morning Report – Thursday, 16 February 2012

The negotiations surrounding the refinancing of Greece are now hitting a nationalistic nerve in Athens as continued uncertainty over the timing of the ratification of the nation’s second bailout weighed on investor sentiment. The Greek President Karolos Papoulias made cutting remarks about German Finance Minister Schaeuble as the debacle begins to increase tensions between Greece and other members of the eurozone. The language has become increasingly emotive with Schaeuble’s deputy saying that Greece was a “bottomless pit” while Greece’s President said “I don’t accept insults to my country by Mr Schaeuble. I don’t accept it as a Greek . Who is Mr. Schaeuble to ridicule Greece?” The EUR fell from as high as 1.3192 to 1.3043 despite Luxembourg PM Juncker saying that he was confident that a decision on the bailout would be made at the next euro-area finance ministers summit on February 20.
Andrew Su, CEO of Compass Global Markets had warned in a Bloomberg Television interview that the economic crisis and a rising wave of nationalism amongst Greek politicians is threatening to throw the country into political and social chaos. Investor concerns that Greece is moving closer to default dominated the news wires yesterday. The release of the latest minutes of the Federal Reserve showed debate amongst members in terms of more easing. Some members believe that the Fed must consider more security purchases soon while other stated that the economic outlook would have to worsen be-fore they considered this. The lack of a united view further added to the risk averse tone in the markets last night. The Australian dollar rose to as high as 1.0777 before crashing to below 1.0700 as the EUR plunged.
Share markets were mixed as the war of words escalated in the Greek negotiations. Asian markets had risen strongly with the Nikkei and Hang Seng gaining more that 2% on news that Japan would pursue more security purchases and comments out of China that were broadly supportive of European efforts to fight the debt crisis. European bourses were mixed with the DAX gaining 044% while the FTSE fell 0.13%. However, the positive sentiment failed to flow through to US equities. The S&P 500 closed lower by 0.54% to. 1,343 as minutes of the Federal Reserve showed a division between members on the issue of further asset purchases.
Commodity prices were firm yesterday despite the rising concerns over the Greek debacle. The CRB index closed 1 point higher at 314.95. WTI crude prices continued to rise, gaining 1% to $101.75, after reports that Iran has halted shipments to Europe and US inventories rose. Precious metals were mixed with gold rising 0.6% to $1,728 while silver has fallen 0.1% to $33.30. Soft commodities were mixed with cocoa surging more than 5% while coffee fell 1.75%. Copper lost 0.33%.


Feb. 15 (Source: Bloomberg) — Andrew Su, chief executive officer of Compass Global Markets in Sydney, talks about the outlook for the European sovereign debt crisis and its implications for global financial markets. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)


GOLD continues to very much trade as we expect between a range of $1,712 to $1,728 overnight. Since our revision of our short bias to neutral gold has been stuck in a $1,710 to $1,750 band and we expect more of the same to come. We are beginning to suspect that a break will come with some upheaval that will cause increased volatility in the equity markets. The recent rise and reduction in equity markets has seen trading in gold extremely subdued and until we see some volatility in the markets we don’t expect this situation to change. There are two possible triggers at the moment for a expected spike in the gold price. Firstly, a rapid deterioration in negotiations over the Greek refinancing and secondly an escalation in the Middle East precipitated further tensions between Israel and Iran. For today look for more of the same. Buy on dips towards $1,710 and sell on rallies to $1,740 with stop losses outside of recent ranges.


AUD/USD continues the rollercoaster ride as the sentiment swings with every new headline. The Chinese reports about helping fund the European crisis was well taken during the Asia session with the AUD jumping from below 1.0700 to close the Asia session at 1.0750. The rally continued during the European morning but once more reports about Greece funding delays due to hurtles not being meet or likely to be meet the sentiment changed bearish with all of the gains being given with the AUD now closing NY at 1.0688. Helping the decline was solid selling from intraday traders that follow the link to US equity markets as it was up 0.6% at the US open and fell to be close to – 0.2% at the close. FOMC minutes helped the last slide with a more dovish outlook for growth. Important day for data with Employment Change and the unemployment Rate! Expectations of 10.5k of new job but a rise in the unemployment rate is clearly mixed. However, like last months correct forecast we like a number below zero as the European crisis continues to affect hiring.


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All references to prices, amounts and currency are in Australian dollars unless otherwise noted.
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