8 August Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
After enjoying a storming finish to last week, the stock markets were able to build on their gains yesterday after inspectors from the International Monetary Fund (IMF) and Eurozone reported that Greece was successfully instigating measures that would help it service its debt obligations. This encouraging news helped investors build on the fresh optimism that they acquired after the President of the European Central Bank (ECB), Mario Draghi, defined a framework last Thursday for the ECB to activate additional quantitative easing aimed specifically at reducing the sky-high borrowing costs of Spain and Italy. As a consequence of these developments, the stock markets climbed again on Monday typified by the Dow Jones Index gaining over 20 points during the trading session.
Market analysts summarized the situation by stating that the markets seem to have decided to give stocks and commodities a boost despite their disappointment last week when Draghi failed to deliver any immediate solutions capable of controlling the European debt crisis. After completing their investigation in Greece over last weekend, IMF and Eurozone officials advised that Greek authorities were implementing sufficient budget cuts that would allow the nation to satisfy the fiscal requirements of its bailout package. However, they also warned that they still had a considerable amount of work to undertake in order to complete their mandate and would be returning in September to do so. Despite these encouraging revelations, investors were still adopting a cautious stance yesterday as the yields of the Spanish 10-year bonds continued to hover at precariously high levels and because the proposed modifications to the European Stability Mechanism have still not been approved by Germany’s top court.
Investors provided the euro with moderate support yesterday after they leant that IMF and Eurozone inspectors were happy about the progress Greece was making to satisfy its debt obligations. As a result, the EURUSD inched higher on Monday by almost 5 pips nearing its psychologically important 1.2400 level to close at 1.2394. Analysts are now advising that the Euro should continue to strengthen against the USD over the coming days as a result of Draghi outlining a framework for the ECB to intervene with additional stimulus measures to help control soaring Italian and Spanish borrowing costs. Consequently, with the EURUSD enjoying a new bullish impetus, consider buying the pair if price breaks above 1.2453.
The British pound came under pressure from the US dollar during the early part of yesterday’s trading session after economic data revealed that UK house prices were still declining. The USD also acquired another boost amid speculation that the Bank of England will release a dovish inflation report later this week. As a result, the GBPUSD plunged by almost 70 pips to a daily low of 1.5545. However, the pair then rallied later in the day following an improvement in risk appetite arising from encouraging Greek news. The GBPUSD subsequently pared most of its losses by breaking back above its important 1.5600 level to close at 1.5603. Despite this display of resilience, the British pound still appears vulnerable to further weakness because of the dismal state of the UK economy. In addition, the USD looks set to strengthen if the European debt crisis deteriorates any further. As such, sell the pair if price drops beneath 1.5599.
The Australian dollar edged higher yesterday against the USD with the AUDUSD climbing by over 30 pips to hit highs not seen since the middle of March. After achieving a sustained break above its resistance level at 1.0580, the pair proceeded to rise to a daily high at 1.0591 before undergoing a mild retraction. Currency analysts are now advising that key technical indicators are pointing to the AUD strengthening further against the USD by targeting the next major resistance level at 1.0632, which would open the upside towards 1.0695. An important support level resides at 1.0493. There is a general sell-off, at present, of both the Euro and the USD, which is also lending support to riskier assets, such as the Australian dollar. With a strong bullish sentiment presiding over the AUDUSD, buy the pair if price can sustain a clean break above 1.0594.
The Swiss France followed the footsteps of the Euro on Monday by strengthening against the USD as investors provided the single currency with a moderate boost amid promising Greek developments and the announcement last week of an ECB framework for future stimulus intervention. The USDCHF dropped by 35 pips to a daily low at 0.9963 before undergoing a minor rally later in the day. However, the Swissie is still prone to further weakness because of the flagging state of Switzerland’s economy. In addition, further deterioration in the European debt crisis and the global economic recovery will bolster the USD in its capacity as a safe haven asset. Consequently, consider activating a new CALL currency option using the USDCHF as its underlying asset if price can break above 0.9756.
Anticipation that the US Federal Reserve will instigate a new bout of quantitative easing to boost the faltering US economy helped propel the price of gold higher on Monday. Investors lent support to the precious metal yesterday after concluding that the instigation of additional stimulus measures is a distinct possibility despite the release of a better-than-expected US labor report last Friday. Many are even postulating that the Fed will take appropriate action as early as its next meeting, which is scheduled in September. Bullish gold movements are heavily dependent on the introduction of new monetary easing by the global central banks and the performance of the precious metal has recently been underpinned by prospects that the Fed would activate such a policy this year. As such, consider buying gold if its price climbs above $1,617.46 per oz.
The price of oil edged higher yesterday amid fresh Middle Eastern turmoil, rising stocks and a broad-based weakening of the US dollar. With oil enjoying a slight bullish bias, buy this commodity if its price breaks above $93.25 per barrel.
Following the announcement yesterday that the board of directors of Fraser and Neave (F&N) had accepted a $4 billion offer from Heineken, the shares of the company surged to an historic high. Speculation was rife on Monday that the partial acquisition of the Asia Pacific breweries by Heineken could be the beginning of Fraser and Neave selling a spate of its valuable assets. F&N, which has a market capitalization of $6.7 billion, saw its shares surge by nearly 5% during yesterday’s trading session.
Although the instigator of last Wednesday’s computer glitch successfully acquired a credit line worth $400 million yesterday, Knight Capital still witnessed its shares collapse by over 20%. The US market maker has been under siege facing possible bankruptcy since it adversely affected the trading of 140 major stocks last week.
The stock markets recorded moderate gains yesterday amid good Greek news and proposed ECB framework sending the shares of both Apple and Google higher with those of the former surging by 0.11% to $622.55 while those of the latter climbed by 0.43% to $644.10. With both companies trading bullish channels, buy Google if its share price jumps higher $645.50 and purchase Apple if its share price breaks above $623.64.