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Currencies AUD Compass Directions Morning Report – Friday, 17 February 2012

The markets continue to oscillate like a yoyo between mania and depression as news surrounding Greece dominates market sentiment. Yesterday, we saw the EUR plunge below 1.3000 before surging to above 1.3150 after Germany’s Die Welt newspaper reported that the European Central Bank will proceed to swap its EUR 50 billion in Greek government debt for new Greek bonds. Reports that Germany wants eurozone finance ministers to move towards an approval for the EUR 130 billion rescue package at a February 20 meeting along with a finalization of the debt swap deal also buoyed markets.
 
Good US economic also helped to halt the slide in the markets and prompted a sharp reversal in the currency markets. US jobless claims fell to a four year low whilst the Federal Reserve Bank of Philadelphia’s economic index came in better than expected. The numbers were not as impressive as the rise in markets would suggest and it appears that investors are intent on getting the most out of the recent bull run in markets. Jobless claims fell by 13,000 last week while housing starts increased by 1.5%. After falling to as low as 1.0645, the Australian dollar rocketed back above 1.0750.
 
Share markets yesterday were once again mixed. Asian markets were broadly lower while European bourses were largely flat with the DAX losing o.09% while the FTSE was down 0.12% as Greek default concerns dominated the markets. However, this all changed with positive news developments and the good economic data out of the US. The S&P 500 surged to its highest levels in nine months with all 10 industry groups rising and financials gaining on speculation that European governments are considering cutting interest rates on loans to Greece. The index has closed 1.1% higher to 1,358.
 
Commodity prices firmed as US equity markets surged. The CRB index closed 1.46 points higher at 316.41. WTI Crude oil continues to rise, gaining more than 0.5% to $102.35. After falling in European trade, precious metals have recovered with gold gaining 0.1% to $1,730 while silver has risen 0.23% to $33.49. Soft commodities are mixed while copper is higher by 0.12%.

GOLD:

GOLD continues to very much trade as we expect between a range of $1,705 to $1,730 yesterday and has now provided the range trader multiple opportunities to benefit from its recent price action. Gold remains stuck in a broad $1,705 to $1,750 band while trading between a $1,715 to $1,730 band for most of the past two weeks now 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. Price swings in the S&P 500 have narrowed to a nine month low just as the index rallies towards a nine month high. An interesting fact is that the last time that the 10 day average volatility in the index was as low as it is currently was after it peaked in April last year from where it fell 19% through to October . Continue to buy on dips towards $1,710 and sell on rallies to $1,740 with stop losses outside of recent ranges. This strategy has served us well for now and we see no reason for a change to this.

AUD/USD:

AUD/USD jumped on the much better than expected Employment numbers with the expected 10.5k giving way to a 46.3k positive result. This almost reversed the losses seen the previous month with a strong female part time number.  The result was greeted by the markets with a jump of the AUD above 1.0700 and topping out in the mid 1.0740’s before quickly turning lower as the risk off sentiment in the majors took control of the AUD pricing again. By the European morning the pair was looking likely to test major support levels at 1.0625, however, the price made a quick about face heading for a return into the 1.07’s. The level of the bounce has been a surprise with Asia high easily taken out with the markets now believing Greek funding will happen soon and better than expected Housing numbers in the US supported a strong equity market and the old link to AUD. No data Friday and the positive lead in should see the AUD bounce between 1.0750 and 1.0780 during the morning before the bears again take control for the next swing of the YOYO!

 

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