August 6 Weekly Market Review
Financial Market Overview
After a very frustrating week during which investors had their hopes severely dashed by both the US Federal Reserve (Fed) and the European Central Bank (ECB), the release of a very encouraging US non-farm payroll figure last Friday finally parted the clouds and let in some sunshine. The US labor department disclosed that just over 160,000 new jobs had been created during July which easily surpassed market expectations of 100,000. On a slightly negative note, the unemployment rate inched higher to 8.3% during July as compared to 8.2% in June. As a consequence, buoyant markets surged on Friday, epitomized by the Dow Jones Index rocketing by over 200 points, wiping out practically their entire losses accumulated during the first four trading days of last week. An alarming event did occurred last Wednesday when a major technological glitch adversely affected the performance of nearly 140 major stocks.
The policy statement issued by the ECB last Thursday appears to have damaged the credibility of its president, Mario Draghi. The basic problem is that Draghi empathically pledged in the previous week that the central bank would do all in its power to save the Euro. However, he then diluted this assertive statement by advising last Thursday that the ECB would engage in lowering Spanish and Italian borrowing costs but only if the European debt crisis deteriorates further. Consequently, all important economic indicators scheduled for release from Europe this week will now be carefully analyzed in order to assess the impacts of this new ECB passive stance. For example, will the ECB’s lack of action result in a market panic causing Spanish and Italian borrowing costs to spiral out of control? The US Federal Reserve is expected to assess the need for further stimulus measures this week by tracking both the European debt crisis and the release of key data, such as the US Consumer Credit Change, Trade Balance and Monthly Budget Statement.
The release of a better-than-expected US non-farm payroll figure last Friday reversed the damage done to the Euro by Draghi last week causing the EURUSD to surge by over 200 pips to a weekly close of 1.2376. Many analysts are now advising that the pair has entered a new bullish trend for a number of significant reasons. The EURUSD is extremely oversold with investors holding too many sizeable short positions. In addition, despite the market’s initial disappointing reaction to Draghi’s press conference last week, he did define a new framework for ECB future intervention which analysts have now deemed to be Euro bullish. Consequently, consider buying the pair if its price can break higher than 1.2403.
The British pound spent most of last week weakening against the USD before paring most of its losses following the publication of a very encouraging US non-farm payroll figure on Friday which caused the GBPUSD to rocket to a weekly close at 1.5636. The UK will post key economic indicators this week including its Manufacturing Production (Tuesday), Bank of England (BoE) Inflation Report (Wednesday) and PPI Input figures on Friday. Despite its impressive performance last Friday, many currency consultants are now expressing the viewpoint that the British pound is still vulnerable to further weakness. This is because of the dismal health of the UK economy and because the USD will strengthen in its capacity as a safe-haven asset if the European debt crisis continues to deteriorate. As such, sell the GBPUSD if price drops beneath 1.5561.
The AUD traded a narrow channel against the USD for the majority of last week until last Friday when the AUDUSD soared by 80 pips. The USD suffered broad weakness against most of the major currencies after a US labor report released last Friday disclosed that US employers created over 160,000 jobs in July, which not only registered the biggest improvement in five months but also easily surpassed market expectations of 100,000. Australian is due to report a number of key economic indicators this week including Cash Rate (Tuesday), Reserve Bank of Australian (RSA) Rate Statement (Tuesday), Employment Change (Thursday) and RBA Monetary Policy Statement on Friday. Many analysts are now forecasting that the AUD has further room to extend its gains against the USD, especially if Australia can keep posting improving economic data. Consequently, consider buying the AUDUSD if its price can sustain a clean break above 1.0577.
After losing ground for most of the week against the USD, the CHF surged strongly on Friday with the USDCHF plunging by over 160 pips following the release of an impressive US labor report. Switzerland will issue a series of prominent economic indicators this week including its Unemployment Rate, Foreign Currency Reserves and CPI all on Tuesday followed by a Consumer Climate Survey on Wednesday. Despite a surge in CHF strength last Friday, many analysts are suggesting that this performance could be just a blip for a number of reasons. For instance, the USD is very likely to gain support in its mode as a safe-haven asset should the European debt crisis and the global economic slowdown deteriorate further. In addition, a sluggish Swiss economy and a lack of imminent intervention by the US Federal Reserve are also providing USD support. Consequently, buy the USDCHF if its price leaps higher than 0.9818.
The price of Gold rallied last Friday after investors lent support to riskier assets following the publication of a better-than-expected US labor report. In addition, the precious metal gained a further boost from an increase in expectations of a pending US Federal Reserve intervention following the disclosure that the US unemployment rate had climbed to 8.3% during July from 8.2% in June. Despite its impressive performance last Friday, Gold still recorded its largest decline in almost one and a half months last week. As gold rallies on the instigation of new quantitative easing by the global central banks, analysts are now predicting that the increased expectation of Fed action should be sufficient to induce a new bullish bias onto this commodity. As such, buy gold if its price can achieve a sustained break above $1,605.80 per oz.
The price of oil rose last Friday in unison with the commodity market in general following the disclosure of an impressive US labor report. With a bullish sentiment settling over oil, buy this commodity if its price climbs above $91.94 per barrel.
Knight Capital endured a torrid time last week after its computer facilities generated a technological glitch at the start of last Wednesday’s session which injected havoc into the markets by adversely affecting the trading performance of nearly 140 major shares. The company, which is one of most prominent market makers in the USA, had to fight for its very survival for the remainder of last week with its market capitalization plunging by almost 75%. With its customers fleeing the ship, the firm now looks very vulnerable to either a takeover or bankruptcy after it recorded a trading loss of over $400 million last week.
Despite posting a drop in sales, Procter & Gamble saw its shares climb by 3.5% last Friday after reporting better-than-expected quarterly profits. Management instigated a $10 billion restructuring program earlier this year as well as activating new company policies in order to combat a dramatic decline in growth.
Jubilant markets rocketed upwards last Friday following the release of a good US labor report dragging the shares of both Apple and Google higher with those of the former climbing by 1.30% to $615.70 while those of the latter soared by 2.00% to $641.33. As both companies are presently trading strong bullish channels, consider buying Apple if the price of its shares achieves a sustained break above $616.82 while buy Google if its share price climbs higher than $642.23.