The Wall Street Journal has published an article that reported, “Both the European Union and IMF want to avoid having to bail out Spain at all costs...but early planning is under way given that the country is struggling to raise a €10 billion ($12.4 billion) shortfall in funds to bail out Bankia.” Both the International Monetary Fund and Spain have denied that they are in talks regarding a bailout. However, we are afraid that where there is smoke there is fire. It is entirely implausible that policymakers have not already started making plans for the possibility that Spain will need financial assistance. Meanwhile, both MSCI Inc. and Standard & Poor's have announced the way that they will recalculate various indices should Greece leave the common currency. The EUR remains pressured and opens the morning at 1.2360.
Meanwhile, the pressure on German Chancellor Merkel to act decisively, and soon, to stabilise the eurozone, has intensified as both Italian PM Monti and ECB President Draghi called for Germany to accept the concept of direct official aid for Europe's ailing banks. Monti has also called for a mechanism for common borrowing across the eurozone. However, Germany has once again rejected proposals by the European Commission, only yesterday, for bank recapitalisation using common funds and the introduction of a “eurobond.” Merkel has also lost a strong friend in the defeat of Nicolas Sarkozy. New French President, Francois Hollande, is challenging austerity and calling for a more active ECB in further defiance of Germany's stance. One may well wonder how long Germany will tolerate the squabbling of its dysfunctional "family." The Australian dollar opens the morning at 0.9730.
Greek opinion polls continue to drive the equity markets as the latest poll, which shows New Democracy, a pro-bailout party, leading the anti-bailout party Syriza Party, prompting a late reversal in the S&P 500, after the index traded down more than 1.1% at one stage. The S&P 500 has closed down 0.23% at 1,310. Stocks fell as Americans applying for unemployment benefits rose and business activity grew at the slowest rate in more than two years. Earlier in Europe, shares were mixed with the DAX losing 0.26% while the FTSE gained 0.45%.
Commodity prices have seen further falls as the CRB index lost 2.08 points to 272.97. WTI continues to lose ground on increasing concerns over global growth and is down another 1.2% $86.80. Precious metals have barely moved with gold trading flat at $1,566 while silver has fallen 0.5% to $27.80. Soft commodities are broadly lower with wheat, coffee and soybean recording the biggest losses. Copper is down 0.62%.
Gold swung in a relatively narrow range of $1552 - $1572 yesterday before opening this morning flat at $1561, posting a 6% loss in May. As we expected fluctuations within the triangle development continued with offers around the upside of $1572 checking further gains. However the bullion was held up by technical bids and weak short exits not far above the critical support zone of $1520-$1530 as most markets fell on a weaker ADP private sector employment in US, increased US news claim of unemployment benefits and ongoing concern about Spain's capacity to raise capital without help. We are
smelling a comeback of some safe haven demand for the precious metal as it outperformed crude and equity markets overnight. But we remain firmly bearish in the medium-term as the possibility of a credit squeeze is looming and room for monetary policy adjustments are limited.
Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH
AUD/USD sentiment across the markets seesawed over the last 24 hours as the much weaker
than expected Australian Building numbers started the turmoil with one of the worst results I have
ever seen. AUD broke below the previous 0.9690 lows as stops were triggered down to 0.9670. However,
the overly short markets squeezed shorts as we expected and the momentum is getting overdone.
During Europe and the US session the markets continued to be choppy with the price reaching the mid 0.9700 as reports the IMF are already working out the details of a bailout packages for Spain surfacing. Mixed US numbers caused more grief with the price back towards the lows around 0.9680 before closing now at 0.9730. China Manufacturing PMI and US nonfarm payrolls will be the focus for today until the close and all we can expect is more volatile markets. Play positions close to your chest and don’t chase a
trade if trading at all. We will be selling into rallies towards 0.9800 if seen and buying back dips towards
the recent lows or the low 0.96’s.
Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH
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AUD/USD1" title="AUD/USD1" width="852" height="50">
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