August 8 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Recent statements from global central banks, which have increased expectations for additional quantitative easing, have propelled stocks higher lately epitomized by the S&P500 climbing for five consecutive weeks and breaking above its psychologically important 1,400 mark on Tuesday for the first time in over three months. Yesterday, investors preferred to adopt a cautious stance amid light trading volumes as they await further clarification from the European Central Bank (ECB) and the US Federal Reserve (Fed) about the exact nature of their future stimulus plans. With new data releases disclosing further deterioration in both the global economic recovery and European growth, the Fed and the ECB appear to be stepping closer each day to the point whereby they will commit themselves to immediate bouts of monetary easing.
Analysts summarized yesterday’s developments by stating that the markets were in limbo on Wednesday because no significant economic data was published which could help investors drive stocks in any particular direction. The resultant indecision caused the markets just to meander during the session by trading almost flat as typified by the Dow Jones Index gaining only 7 points. The soaring borrowing costs of Spain ignited fresh concerns on Wednesday after the yields of the nation’s 10-year bonds surged above its critical 7% level. Experts regard such an incident as very disturbing because this is the mark considered by many to be the point above which Spanish debt is no longer sustainable. These events, however, substantially increase the prospects of the ECB intervening with a new bout of quantitative easing sooner than later.
With no data releases providing the momentum for further EURO gains against the USD, profiting-taking caused the EURUSD to slide on Wednesday. As a consequence, the pair slumped by just over 70 pips to a daily low of 1.2325 yesterday before undergoing a mild rally to close at 1.2362. Currency analysts are now advising that one of the prime reasons for the recent EURUSD bullish movements is that investors have reduced their short positions in order to record profits. They also stated that although the ECB is very likely to instigate further bond buying to help control the soaring borrowing costs of Spain and Italy, it may take until September before it is ready to do so. As such, many are now predicting that the Euro could weaken against the USD in the interim to the point that the EURUSD could even test its important 1.2000 level. With a new bearish sentiment settling over the EURUSD, sell the pair if price plunges below 1.2336.
The British pound strengthened against the USD on Wednesday after the Bank of England (BoE) kept its interest level on hold advising that a reduction could adversely affect the performance of a number of important financial institutions. The GBPUSD climbed by almost 60 pips to a daily high at 1.5675 before bouncing against a major resistance level and falling by 23 pips. Despite its resilient performance, yesterday, the British pound is now looking down the barrel of a gun which could see if weakening considerably over the coming months. This is because the UK recession is continuing to deepen as advised by the BoE in a statement issued yesterday in which it substantially slashed its future growth projections for the British economy. With these glum prospects subjecting the GBPUSD to a new bearish bias, consider selling the pair if price drops under 1.5619.
This pair traded a tight range of 50 pips yesterday fluctuating between a daily low located at 1.0531 and a daily high at 1.0581. With no major economic releases to help sustain any serious bullish or bearish momentum, the AUDUSD spent the yesterday’s session trading flat. This state of limbo could dramatically change following the forthcoming releases of important Chinese economic updates including its Consumer Price Index, Producer Price Index, Industrial Production and Retail Sales. This is because the Australian economy is very sensitive to the developments of that of its giant neighbor as China is its biggest exporter. Consequently, if the data discloses any deterioration, then the Australian dollar could weaken against the US dollar over the coming days. However, as most experts are predicting that the AUDUSD should continue its bullish trend over the longer term, consider buying the pair if price breaks above 1.0588.
The Swiss France mimicked the movements of the Euro yesterday by tracking the single currency as it weakened against the US dollar amid low trading volumes and investor indecision. AThe USDUSD surged by over 50 pips to break above its psychologically important 0.9700 level and hitting a weekly high of 0.9743 before undergoing a mild retraction to close at 0.9713. The Swissie now looks vulnerable to further weakness against the USD over the coming days as currency analysts do not expect it to acquire any immediate boost from ECB stimulus actions in the short-term. In addition, the markets are currently harboring many concerns about the health of the Swiss economy which is struggling primarily because of the close proximity of Switzerland to problematic Europe. With a strong bullish bias prevailing over the pair, buy the USDCHF if its price can climb above 0.9732.
The lack of assertive action yesterday by the Bank of England to introduce stimulus measures to help bolster the struggling UK economy caused the price of gold to trade a tight range resulting in it creeping higher to record a modest daily gain. For the precious metal to attain any serious new bullish momentum, it desperately needs global central banks to climb down from the fence and instigate new bouts of quantitative easing. Their current indecision is creating uncertainty in the markets resulting in investors sitting back and adopting a cautious stance. However, with economic releases persistently providing evidence that the health of the global economy is definitely deteriorating, experts are still of the opinion that stimulus measures will be forthcoming soon. With a slight bullish bias hovering over gold, buy this commodity if its price can jump higher than $1,617.25 per oz.
The price of oil slipped yesterday amid concerns about falling US domestic stockpiles and reductions in North Sea output. However, with a bullish bias still prevailing over the markets, buy oil if its price jumps above $94.42 per barrel.
Hewlett Packard saw the value of its shares appreciate by 2.5% on Wednesday after it revised its Q3 earnings forecast higher and slashed the value of its services sector by $8 billion. Specifically, the top producer of personal computers in the world informed the markets that it predicts earnings of $1 per share for its third quarter surpassing analysts’ expectations of 97 cents. Spokesperson cited that the major reason for this encouraging result was that the company planned to save $3.5 billion annually by reducing its workforce by 8%.
After Chesapeake Energy informed the markets that it was close to completing a deal to purchase 1.5 million acres in Texas, the shares of the oil producer rocketed by 9% during yesterday’s session. The company also advised that it was radically reducing its spending program on oil and gas facilities.
The stock markets traded almost flat yesterday amid investor uncertainty creating a mixed reaction from the shares of Apple and Google with those of the former falling by 0.17% to $619.86 while those of the latter rose by 0.26% to $642.23. With both firms still retaining bullish momentum, buy Google if its share price leaps higher than $643.29 and purchase Apple if its share price breaks above $621.15.