$$ Australian dollar sold aggressively shocking RBA rate decision

-RBA shocks markets and cuts of 50 bps to 3.75 %

-Surprising decision history RBA holding

-Aussie sold aggressively across the Board in response

-The China manufacturing PMIS are lower than expected

-Yen continues to offers; but limited additional upside

Trade in may began with a bang after the RBA is out and shocked markets by cutting rates 50 bps to 3.75% (consensus had called for a 25bp cut). Although there is talk of the need for a 50bp of the Australian Central Bank, many, including ourselves, do not believe that the Central Bank would move so aggressively because of their traditionally more hard and less concerned about the prospects of the local and global economy. The shock was not that rates were reduced to 50 bit/s, but that a Central Bank which has persistently made an error on the hard side throughout the crisis world, finally surrendered and woke up to the reality. Better late than never, and fully support us the decision of the Central Bank and notice that there is a clarity finally present that has long been absent.

In the statement accompanying it, the RBA cited softer economic conditions, housing difficulties and a moderation of inflation. We believe that it is a very important decision which will have a greater influence on the market in the coming weeks. The RBA decision reaffirmed our basic view that we are still not at the end of the global crisis and only now enter the third and final phase which will intensify in the block of the products and the emerging market economies. China is at the Centre of this third phase and evidence being continuous slowdown of the Chinese economy should weigh heavily on the economies of correlation. Australia, the other block of raw material economies and emerging markets will suffer from this downturn and we believe that better trade moving forward is short goods block and EM and long major currencies.

While it is difficult to concentrate on anything at this time other than the RBA decision day, the latest data of China should certainly not be ignored, with manufacturing PMIS from milder than expected. This highlights our view and we suspect that the Australian Dollar a lot of inconvenience, especially now that the interest rate differentials and the negative report are much less daunting. Australian bulls could claim that the drop rate is positive for risk, as it is now a much more accommodating environment that will help stimulate the economy, but we buy not in this assertion, that we feel the RBA has fallen too far behind the curve and will have to play a game of catch ("get down" is perhaps more appropriate).

In addition, it will be useful to keep an eye on EUR/USD to see if the market can still push higher to test the main obstacles by 1.3300. USD/JPY is also in the securities of FX with the pair of large falling to charge several days low back below $80.00. From here, it seems that there are still deeper setbacks room, but we do not provide an expectation of the record lows of 2011 and recommend instead the search for opportunities to buy the hollow below 79.00.

TRADE OF THE DAY

EUR/USD: (this recommendation was issued last week but have been revised at the entrance and it stops). (See below). Although the last rally was impressive, we support the market is still locked in a more well defined medium to the downward trend in the long term from the record highs of 2008, and as such, seeking to sell rallies in 2012 is the best strategy. The rally has now expanded beyond 1.3200 and from there we see scope for further upside through 1.3300. However, once the 1.3300 level is tested and broken, there is a very strong technical argument for a bearish resumption. Looking at 1.3300 level shows a confluence of resistance which includes the obvious psychological barrier itself, with resistance fall of February 2012 peak trend line, band upper bollinger and a very beautiful fib of 78.6% trace off the coast of the most recent March-April, 1. 34400-1. 3000 down move. Thus, we really like the idea of the discoloration and overshoots beyond 1.3300 and place our entry accordingly. STRATEGY: Sell to 1.3320 for an open goal; STOP-LOSS on any daily closing (5 pm NEW York City time) over 1.3420.

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