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Currencies AUD Compass Directions Morning Report Tuesday, 13 December 2011

Markets wavered and then fell as export growth in China fell to its lowest levels since 2009 and investor optimism over the latest European accord faded. History repeats itself as markets celebrated the conclusion of another EU summit before once again being hit by the reality of the ongoing crisis. Moody’s Investor Service announced that last week’s EU summit has failed to deliver “decisive policy measures” to address the debt crisis and placed the credit rating of all European Union members on review. Fitch joined the chorus of criticism by saying that the summit does little to ease pressure. China’s ex-ports rose 13.8% year on year compared to 15.9% growth in October. The EUR went into free fall to touch 2 month lows at 1.3162.

The USD and the JPY strengthened against most of their trading peers as investors rushed to safe haven assets overnight as concerns escalate over the manageability of the European debt crisis. In a worrying sign yields for one year Italian bonds sold at 5.95% at a bond auction overnight and yields remained persistently high even with speculation that the ECB had pur-chased some of the nation’s debt. Italy has EUR 53 billion in bonds maturing in the first quarter and this amount represents a staggering 30% of the entire region’s maturing bonds for that period. The impact of the latest round of risk aversion has most adversely affected the risk currencies. The Brazilian Real plunged more that 2.5% while the Australian dollar lost more than 1.5 cents to trade as low as 1.0052. USDJPY opens the morning at 77.90.

Despite US economic data that continues to outperform expectations the European debt crisis continues to dominate inves-tor sentiment in the equity markets. Global markets plunged overnight as European bourses bore the brunt of the sell-off. The DAX lost 3.36% to 5,785 while the FTSE fell 1.83% to 5,428. US equities fell with the S&P closing 1.49% lower to 1,236. The biggest losers among the 10 industry groups on the S&P 500 were commodity and financial firms. Morgan Stan-ley and Citigroup both fell more than 5%.

Commodities plunged as investor confidence in the latest Euro accord faded. WTI Crude oil plummeted almost 2% at one stage and opens the Asian session below $98.00. Precious metals were punished with gold losing almost $50 to $1,669 while silver has lost 3% to $31.28. Soft commodities continue to fall after the recent reports of rising stockpiles and global sup-plies while copper was sold heavily losing almost 3%. The CRB index down 3.57 points to 302.86.

GOLD was hit hard in offshore trade as we saw global markets crumble on the back of negative comments out of Moody’s and Fitch which suggested that even though the EU Summit had some positive outcomes, it had not done enough to avert a slowdown and potential debt downgrades. Copper prices were sold off and the Euro and the UD both fell on the news which saw equities decline and gold suffered as investors moved to cash rather than precious metals on the night.  Gold finished US trade weaker by 2.75% at $1,668. IT was a bad day in Asia yesterday and an even worse night last night for precious metals prices as negative comments and a broad sell-off left only one way for prices to go. We may see further weakness from here and we are definitely not out of the woods just yet as we remain near the nights lows but we do remain above major MT support towards $1,585/$1,600 and as long as this holds the bigger picture tend is in place. Having said this we have broken ST support and a break below $1,657 which was last nights low and we are headed lower for sure so we are sidelined for now waiting for a bottom but a break lower and we will get short intra day only. Only a break back above $1,700 confirms a bottom and intra day a break through resistance at $1,675 should trigger further gains back to $1,690.

AUD/USD was smashed during the European and US sessions as two of the major ratings agencies warned that the EU summit failed to do enough for the outlook not to be negative and once the Moody’s release during the London session started the momentum there wasn’t much to stop it. The first break below 1.0155 started a wave of momentum selling and with liquidity being lower than normal there wasn’t much to stop the slide! However, the break has been stopped in its tracks by the support we saw on the charts at 1.0050 and as we close the book on the US day the pair remains stuck between 1.0050 and 1.0075. NAB Business confidence is due this morning and with the market looking on edge for a continued decline and if business starts to suffer and the outlook for employment worsens, the outlook for the AUD will not be good. We are watching the 1.0050 level with interest and whilst we don’t expect any major moves ahead of the Xmas break, a move below parity looks more than likely!


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