July 1 Weekly Market Review
Weekly market analysis by OptionRally
Financial Market Overview
On the last trading day of a disappointing quarter, the Stock Markets rallied strongly last Friday after leaders at last week’s European Union (EU) summit agreed to provide financial aid to its region’s struggling banking sector. In particular, a plan had been presented and approved enabling the recapitalization of banks without augmenting the debt obligations of their sovereign governments. European leaders also vetted policies to produce a banking union for the currency bloc as well as agreeing not to impose additional economic reforms or austerity measures on those member countries complying with EU budget rules. US economic data published last Friday provided further evidence that the US economic recovery was now in the doldrums after consumer sentiment collapsed in June to a six month low. Another release demonstrated that Midwest factories recorded a slight decline in orders during May although manufacturing activity for the region edged higher.
There are many important events this week. The European Central Bank meets on Thursday and is expected to cut its interest rate by 25 basis points to a historically low 0.75%. The Bank of England also convenes this Thursday and analysts anticipate that it could instigate an additional GBP50bn of stimulus measures in order to bolster the faltering UK economy. The vitally important US Non-Farm Payrolls are scheduled for release on Friday and will shed more light on the state of the nation’s labor market. Analysts are anticipating an improvement of 90k in June compared to the 69K posted in May. Such an anemic result will keep the unemployment rate stuck at 8.2%. The ISM manufacturing and non-manufacturing surveys for June are published on Monday and Tuesday and will provide deep insights into whether the USA has slipped into recession during May.
The Euro rallied by almost 2% last Friday after leaders at the European Summit approved policies to restrain surging Spanish and Italian borrowing costs as well as supplying financial aid directly to struggling banks within the currency bloc. In response to these unexpected positive developments, the EURUSD leapt against the USD by hitting a daily high at $1.2692. The pair then retracted later in the session to close at 1.2643 achieving a daily gain of 60 pips. However, the Euro still recorded a slump of 5.1% against the USD during the last quarter after posting a 3.1% gain in the first three months of this year. The market euphoria resulting from the outcomes of the European Summit has helped impose a new bullish sentiment upon the EURUSD at least in the short term. Consequently, consider buying the pair if price can break above 1.2670.
The British pound surged against the USD towards the end of last week breaking above 1.5700 before retracting and closing at 1.5666. This movement was again caused by the European Union surprising the markets by announcing plans to recapitalize the region’s troubled banking sector and provide help to debt-laden member nations. An important event this week is the meeting of the Bank of England (BoE) this Thursday when it is expected to instigate additional quantitative easing worth GBP50bn to bolster the weakening UK economy. If such measures are confirmed then they could have the overall effect of devaluing the GBP. Analysts are also expecting that the BoE will make no changes to its benchmark interest rate by leaving it at 0.5%. As the GBPUSD seems to have acquired a positive bid following last week’s EU Summit, consider opening a new CALL currency option using this pair as its underlying asset if price can break above 1.5717.
Tracking other major currencies, the Australian soared against the USD last Friday by surging through its parity level and closing at 1.0237. Tomorrow, the Reserve Bank of Australia (RBA) is scheduled to announce its interest rate decision which is expected to remain unchanged at 3.5%. However, analysts will study the accompanying reports closely to assess if the RBA intends to introduce any new stimulus measures in the near future. Despite the strong AUDUSD rally towards the end of last week, the AUD is still highly susceptible to weakness resulting from the still unresolved European debt crisis and the global economic slowdown. However, the pair could benefit from a bullish bias following last week’s EU summit at least in the short-term. As such, buy the AUDUSD if price can climb above 1.0276.
Investors were surprised by the measures released by the EU Summit last week to address its region’s debt issues causing the CHF to strengthen against the USD on Friday with the USDCHF plunging 50 pips during the session. The Swiss Franc also gained further support from the release of the KOF Economic Barometer last Friday which posted a better-than-expected value. Switzerland is scheduled to publish four important economic indicators this week including Retail Sales (Monday), SVME PMI (Monday), Foreign Currency Reserves (Friday) and the CPI on Friday. Many analysts expect the CHF to weaken further against the USD as a long-term trend because of the struggling Swiss economy. However, the pair should enjoy a brief respite following the surprise measures announced by the EU Summit last week. Consequently, sell the USDCHF if price falls under 0.9477.
Gold received a firm boost last Friday following the release of plans by the EU summit to recapitalize its regions debt-laden banking sector and to reduce the Spanish and Italian borrowing costs. As a result, the price of gold soared by breaking above its important $1,600 per oz level and achieving its first monthly gain in 5 months. The precious metal has a tendency to benefit when central banking authorities instigate new stimulus measures in order to bolster their economies, such as those introduced by the EU Summit last Friday. This is because large financial institutions use gold to safeguard the value of their portfolios by hedging it against problems such as inflation and currency depreciation. As gold should now enjoy a bullish bias, at least in the short term, from the EU summit announcement made last Friday, consider buying this commodity if its price climbs above $1,605.50 per oz.
As a result of the surprised announcements issued by the EU Summit last Friday, oil registered its fourth largest daily gain ever recorded. As this commodity should now enjoy a bullish sentiment, at least in the short-term, consider buying oil if its price rises above $85.54 per barrel.
Nike released quarterly profit figures towards the end of last week which disappointed the markets as they missed their forecasts for the first time in just over 2 years. Spokespersons cited that the main reasons for this negative result were the increased cost of material used in the production of the firm’s shoes and T-shirts as well as an international decline in demand resulting from the global economic slowdown. Following these disclosures, the shares of Nike collapsed by 12.9% to $84.40 towards the end of last week.
In a dramatic statement released last Friday, analysts advised the markets that Research In Motion Ltd was in serious danger of completely consuming all its cash reserves and going bankrupt. This is despite the fact that the company is planning to launch the problematic BlackBerry 10 mobile device early next year. Following these announcements, the shares of Rim plunged by over 16% during last Friday’s session.
The stock markets surged last Friday following the EU Summit’s positive announcements causing the shares of Apple to climb by 2.63% to $584.00 and those of Google to appreciate by 2.79% to $580.07. The ensuing investor jubilation should now sustain a bullish sentiment over the markets at least in the short-term. As such, consider buying Apple shares if price surges above $587.41 and buy Google if its share price breaks higher than $581.53.