The EUR USD posted a strong gain on Thursday after Spain announced that it had sold out $4.3 billion of five-year bonds. The news is evidence that appetite for government debt is still strong and that perhaps the fear of holding European sovereign debt risk may be abating.
Spain had to pay a higher premium to complete this auction, but it was able to place all of its allotment. This news along with the fact that bids exceeded supply by 1.7 times was viewed as a relief for Euro investors especially since Moody’s credit rating service placed Spain’s credit rating under review for a possible downgrade.
The new calm that is working its way through the Euro Zone may have also triggered a huge drop in the gold market. Traders are saying that this move was triggered by the unwinding of Euro-Gold spread trades which were placed when traders bought gold in Euros during the currency crisis. Traders are now taking profits on this trade or cutting losses now that the Euro has begun to rise.
The ensuing short-covering rally in the Euro after the good news from Spain helped drive the market through the last two main tops on the daily chart at 1.2397 and 1.2467. Now that these two barriers have been taken out then it should be “off to the races” as the move through these two levels also took out a pair of downtrending Gann angles which had acted as resistance since April.
The charts indicate that upside momentum may be strong enough to trigger a huge short-covering rally. Further analysis shows that a major 50%/61.8% price cluster at 1.2782 is the most likely major upside target.
Closing price reversal bottoms in the commodity-linked Australian and New Zealand Dollars could be indicating that traders are getting ready to put risk back on the table. Bearish traders in these two markets point out that today’s rallies had nothing to do with risk but rather with technical buying after downside objectives were reached following sharp sell-offs. Furthermore, traders note that short-sellers were encouraged to buy back positions ahead of Friday’s U.S. Non-Farm Payrolls Report.
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