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Currencies AUD Compass Directions Afternoon Report Monday, 5 December 2011

Currency markets were subdued after the normal early Monday morning volatility due to low liquidity. Investors were largely sidelined waiting for further developments out of the European summit to be held later this week on December 9. Chancellor Merkel is expected to meet with President Sarkozy to formulate a plan that will call for stricter enforcement of budget deficit rules for Eurozone members. The EUR traded in a narrow 40 point range while USDJPY is back to its normal flat-line behaviour trading in a 25 point range.

Italian Prime Minister Mario Monti is to push a EUR 30 billion austerity package through parliament after it was approved by his cabinet ahead of schedule. The package includes EUR 12 billion in spending cuts and includes a later retirement age, increases on taxes for first homes and measures to counter tax evasion. The news saw the major currencies gain against the USD before grinding lower during the Asian afternoon. The AUD is closing the day at 1.0210 with an inflation gauge coming in at a 2 year low.

Asian stocks rose today to extend on the biggest weekly rise since August 2007. The MSCI Asia Pacific rose a modest 0.2% while S&P 500 futures gained 0.8%. The Hang Seng is higher by 0.39% to 19,115 while the Nikkei gained 8,682. The ASX 200 closed higher by 0.78% 4,321 as stocks were buoyed by a possible interest rate cut from the RBA tomorrow. Overnight, we have the release of UK PMI, US Factory Orders, US Non-Manufacturing PMI and EUR Retail Sales.

Commodities were largely subdued. WTI Crude continues to rise and closes 0.41% higher to $101.37. Precious metals were largely flat with gold trading at $1,748 while silver rose 0.15% to $32.75. Soft commodities were mixed while copper closed the session down 0.45%.

GOLD eased in Asian trade today in a pretty uneventful session as earlier gains were wiped out as the USD strengthened in late trade as mainland Chinese equities fell into negative territory on weakening data and concerns over the property market. All in all it was a quiet day and US equity futures posted solid gains which should see buying interest return for Gold in early European trade. Gold traded in a $1,743 -55 range and finished the session weaker by 0.20% at $1,745. A fairly quiet day for Gold and after pushing higher earlier in the session as optimism was seen after Italy’s actions we saw the AUDUSD weaken as China equities retreated and this pulled Gold down along with copper. We expect any losses to be limited
and short lived leading up to big announcements in Europe later in the week and any losses from here should be halted towards $1,727/35. We are struggling to hold above resistance at 41,750 which could signal a move lower tonight but we would just be buying into any weakness with stops remaining below $1,700 for now and if tighter stops necessary then place them at $1,725. A break above $1,763 and we will see quick gains targeting $1,777 and then $1,800 which is major resistance.

AUD/USD has spent the day drifting back off from this mornings spike at the open as the reports over the weekend signalled more assistance for the IMF. Offers at the expected top at the 1.0265 resistance line capped the early move if as expected ANZ job advertisements, Zero change saw the price drift back off in very slow trade as the markets grind to a halt before the expected wild European session as many are calling this week the beginning of the end for the Euro if something proactive isn’t done. Small bids ahead of 1.0210 are supporting for now but with the risk off afternoon tone we could easily see the London market trip weak stops below 1.0200 with the price extending to 1.0150. A break below the pivot point would have the bears jumping all over themselves to get a better position and this week could easily turn into the down week last week should of been. Topside resistance remains 1.0265 with the major level of 1.0330.


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