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The S&P 500 continues to print higher highs as traders look past the recent fiscal ‘agreement’ in Washington and onto earnings. With Google smashing expectations on Thursday, rallying 13%, we have now seen 20% of companies reporting, with 70% beating on the EPS line and 55% beating on revenue. Price action on Friday was positive, with the market opening close to the low and closing just off the highs of the day. Earnings ramp up this week, while September data will finally be released due to the government coming back to work, so it should be an interesting week.
EUR/USD hit a high of 1.3704 on Friday, seven pips shy of the year’s high of 1.3711. Price action hasn’t provided any clear signs of a potential reversal, and a break above 1.3711 could see 1.40 come into view. With the Fed likely to start tapering in March, we are still seeing funds closing USD longs as they re-position expectations from a September tapering exercise to March.
Until the chart gives a clearer sign of a reversal, shorting banks has been a tough and rather unprofitable trade. On Saturday the AFR printed an article quoting Matthew McLennan, who runs Australia’s biggest investment fund, saying that he wouldn’t touch Australian banks and that Joe Hockey should be taking the possibility of a housing bubble more seriously. Whether this article has enough in it to actually cause a sell-off in the banks is debatable, but it highlights to me that many funds (mainly offshore) are looking at our property market in a negative light. Joe Hockey detailed last week that many foreign commentators simply don’t understand Australia’s property market.
The pair has struggled to make traction as traders push back expectations for the Fed to taper. However, data in the US comes back this week with US payrolls out on Tuesday. At 10:50 today we get Japanese trade balance and the market expects this to narrow a touch to ¥916 billion, with exports likely to increase 15.6%. BoJ governor Haruhiko Kuroda speaks at 11:30, while we also get US existing home sales.
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