The fundamentals fully justify the current levels, which broke out again and printed a higher high. The pair now trades at the highest level since May 2010, with the US trade deficit shrinking significantly and thus putting upside risks to the final Q4 GDP print. On the other hand we saw Canadian trade balance blow out to C$940 million, with expectations of C$100 million. Traders will now be eyeing a break of the May 2010 high of 1.0853, although 1.0824 may be tough to break as well. Given the strong underlying trend buying pullbacks is the preferred strategy. USD bulls will be keen to see a strong ADP private sector payrolls report tonight at 00:15 AEDT (consensus of 200,000 jobs), as well as the FOMC minutes which will shed further light on the recent decision to taper it bond purchases.
Strong moves were seen in EUR/CHF yesterday, with the pair closing through the 200-day moving average (at 1.2311) and downtrend drawn from the July high at 1.2321. The next target traders will be eyeing is the October high of 1.2375, ahead of the 200-week moving average of 1.2517. Big moves in the European debt markets helped, while there is a feeling that the CHF is a good short given it’s over valuation.
The index rallied nearly 3% on the day as Ireland’s well supported ten-year bond auction lifted sentiment around the region and pushed Spanish bond yields to the lowest level in four years. Spain does have a large funding requirement for 2014 and they raise this through the bond markets, so the lower the yield the cheaper it is for the sovereign. Further falls in yields (as investors buy bonds) should support Spanish stocks.
The iron ore miner fell 8.2% yesterday on strong volume (the highest since November). The fact the stock closed on its low is never a good sign, while other miners in the space like MGX and FMG ALSO were also sold off aggressively. Iron ore fell a further 0.7% yesterday; however the leads from offshore are positive so price action in the iron ore space will be interesting. Credit Suisse upgraded AGO to outperform (its version of a ‘buy’ rating’) on the back of the share price weakness and the fact there is over 20% upside to its twelve month price target. Strong support comes in at the A$1 level, so the buyers will want to see that level hold.