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Currencies AUD Compass Directions Afternoon Report Tuesday, 22 November 2011

The impact of the failure of the US Budget “supercommittee” to agree on cuts is probably academic given the fact that $1.2 trillion will be cut from the US budget whether the committee is able to agree on a plan or not. The fall in the markets had more to do with market senti-ment than anything else and is another sign that investors are becoming fed up with politicians and the speed at which reform is taking place on both sides of the Atlantic. The Europeans have dithered while bond yields in peripheral nations have risen to crisis levels while the Americans have seemingly not learned their lessons from the debacle surrounding the raising of the US debt limit earlier this year that precipitated the downgrading of the nation’s credit rating. The EUR closes the afternoon sub 1.3500 after a lacklustre trading day.

Further weighing on Asian markets today was falling property investment and slowing overseas demand for exports in China. Reports out of the Xinhua News Agency quoting Vice Premier Wang Qishan didn’t aid investor sentiment. He was quoted as saying that he is certain that any global economic recession triggered by the current financial crisis will be long term. Chinese equity markets have fallen for the fifth consecutive day as concerns over a property bubble across the major metropolitan areas dominated headlines. It is no surprise that the trilogy of worst case scenarios facing China, Europe and the US has seen the risk currencies suffer the most. The Australian dollar traded to as low as 0.9825 in trade today.

Asian stocks have fallen for the 6th consecutive day after the US Congressional “Supercommittee” failed to agree on budget cuts. The MSCI Asia Pacific is down more than 0.5% with two stocks rising for every one that fell. The Nikkei is down 0.14% to 8,336 while the Hang Seng has lost 0.25% to 18,181. The ASX 200 closed 0.72% to 4,133 with debt fears enveloping the globe. Rio Tinto fell more than 2% while Qantas lost 4.3% while financials broadly fell. 2.19 billion shares were traded with seven shares falling for every three that gained.

Commodity prices have consolidated, holding steady in trade today after the falls precipitated by the failure of the US budget supercom-mittee overnight. WTI Crude oil is steady at $97.00. Precious metals made marginal gains with gold higher by 0.3% to $1,683 and silver rose 0.65% to $31.39. Soft commodities largely gained while copper is higher by 1.16%. Overnight, we have the release of the UK Public Sector Net Borrowing figure, Canadian Retail Sales, US GDP and the FOMC Meeting Minutes. There will be no shortage of action for the die-hard trader tonight!

GOLD posted muted gains in Asia today as equities recovered some of the earlier losses and as the USD consolidated on recent losses. We saw some buying interest return on the back of a late rise in equities which helped to push US futures higher and a rise in USDYEN helped on the day as the Nikkei was helped by this move. Gold traded in a $1,667-88 range and finished the session stronger by 0.20% at $1,682. It was another choppy day with early losses testing overnight lows before a rise inequities pushed precious metals higher as copper gained and crude prices also recovered. We are now seeing very oversold conditions in the short-term and would not be surprised to see a push higher form here back towards $1,695/$1,700 initially and then up towards major short-term resistance at $1,750. Only back above this level can we confirm a bottom is in place and we should then retest the highs at $1,800. We will see US GDP tonight which we believe will improve and this should push equities higher and the USD lower so a bounce tonight is key in the short-term. Major support in the longer-term sits down at $1,580/$1,600 so we are not convinced the pullback is over just yet.  Above $1,700 tonight and we would consider buying the break for further gains targeting $1,727+.  Intra session support should be seen at $1,670 and lo0wer at $1,650.

AUD/USD bounced off the overnight lows during the morning session as the bottom pickers and small Australian Exporters covered risk even though the outlook is looking even more likely to be towards 0.9000 then 1.0500 again. The rally managed to reach 0.9885 despite the weakish tone of the majors on the back of USD strength as the USDJPY broke above 77.00 for the first time in days. However, the afternoon has seen the price return to the opening levels at 0.9840 as we head into the European morning with a very bearish tone. Ok what are we looking for during the next two sessions that will allow the move to 0.9500 to be set in stone! For the bearish tone to continue the UK borrowing data and US Prelim GDP needs to be below the expected weaker numbers of lower as this will kick in more risk aversion and expected decline of the China boom. Whilst the numbers aren’t the main factor they should provide the trigger that the bears hardly need at present.  Once 0.9800 breaks we could be talking 0.9600 something tomorrow morning!


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