Euro Continues Miraculous Rise As US Dollar Sinks

The euro continues its miraculous rise even in the face of the apparent failure of European policy makers to make any progress on the seven year European Union budget and efforts to keep Greece from becoming bankrupt were again derailed as eurozone finance ministers, for the third time in a month, failed to approve an aid payment.

Chancellor Angela Merkel has said in a press conference last week that “there's no time to waste” as there are several indications that the situation in Europe is heading towards a flash point. In Spain, voters in Catalonia, will decide whether or not to pursue independence for the region, a move that would risk the fragmentation of the nation and further destabilise the eurozone. The common currency opens the new week at 1.2960.

Meanwhile in the United States, optimism that President Barack Obama and Congressional leaders with soon reach some sort of agreement that will avoid the so-called fiscal cliff scenario has seen the U.S. dollar fall over the week and yields on 10-year Treasury notes rise for the first time in five weeks. Federal Reserve Chairman Ben Bernanke had said earlier last week that an agreement on the budget would remove a major impediment to economic growth next year.

The 10-year yield rose 11 basis points to 1.69% over the week while the two-year note yield also rose after the announcement of the ceasefire between Israel and Hamas. The Congressional Budget Office has warned that the fiscal cliff could lead to a contraction of 0.5% in the gross domestic product in 2013.

Stock markets closed the week on the positive note with American markets recording their biggest weekly rally since June on hopes that the fiscal cliff will be averted. Aiding investor risk appetite over the course of the week was good data releases from Germany to China. All industry groups, except utilities, in the S&P 500 index gained over the course of the week with homebuilding stocks recording strong gains on better than expected housing data.

Apple broke a string of eight consecutive weeks of falls to rise more than 8%. The S&P 500 gained 3.6% for the week and recording a gain of 1.3% on Friday to close the week at $1,409. European share markets also gained on Friday with the DAX higher by 0.89% while the FTSE rose 0.49%.

Commodities gained as the U.S. dollar retreated and investor confidence rose throughout the week to see the major commodity index gaining around 0.7% on Friday. WTI crude rose more than 1% to $88.30 as German business confidence rose unexpectedly in November and the truce between Israel and Hamas appeared likely to fail.

Precious metals capped off the week with solid gains as gold gained more than 1.3% to trade at $1,753 while silver surged more than 2.2% to $34.21. Agri-cultural commodities also recorded strong gains although softs such as sugar, coffee and cotton retreated. Copper closed the last session of the week 0.9% higher.

GOLD recorded strong gains on Friday as the U.S. dollar weakened and equity markets cap off a week of rising optimism surrounding the budget negotiations in Washington and a pick up in manufacturing figures from China. Gold traded a $1,728 to $1,754 range. Gold's rise has been aided by a slump in the U.S. Dollar to a three week low. Furthermore, the U.S. Mint has sold 67,000 ounces of American Eagle gold coins this month so far, well above the 59,000 ounces sold in October in a sign of increasing physical demand.

Our expectations that gold would surge above the $1,750 resistance level last week were spot on. In terms of the long positions we initiated at below $1,680 we now move the profit protecting stop loss triggers on this position from $1,705 to $1,715. We will continue to trail this stop loss level higher as gold tests the $1,800 over the next fortnight on the way to its 12th annual consecutive price gains.

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BULLISH BULLISH


AUD/USD traded quietly during the Asia session on Friday with the carryon of the Holiday session from the US having an effect and as expected it wasn’t until the European morning when the action started. The euro turned bid on the back of nothing more than a German Finance Minister saying Greece will likely get the next bailout also as there are no hair cuts.

German IFO numbers surprised to the upside helping buoy the momentum higher. The solid break above 1.0425 resistance saw the price extend in low volumes to 1.0467 during the middle of the US session before slightly backing off into the close. There has been some talk around the trading circles about how the AUD hasn’t seem to really suffer despite the slowing economy and clear problems in the mining sector. This could be on the back of investors seeing the recovery of the eurozone in the near future and the rise in global growth with the US fiscal cliff being dealt with. However, in saying all that selling towards 1.0500 still looks a good turning level.

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NEUTRAL BEARISH
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