July 12 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The stock markets traded a tight range yesterday until the release of the minutes from the June meeting of the US Federal Reserve. Disappointed investors then forced the markets to slump for the fifth consecutive day as epitomized by the Dow Jones Index dropping by 0.38% and the NASDAQ recording a daily decline of 0.49%. The primary reason for this bearish movement was that the minutes failed to distinctly demonstrate that the Fed was any closer to boosting the struggling US economy by another round of quantitative easing. Instead, they indicated that although policymakers were actively debating the need for fresh stimulus measures, they preferred to wait for more definitive signs of economic deterioration before pulling the trigger. This negative attitude caused the markets to immediately sell-off although stocks and commodities did partially pare their losses towards Wednesday’s close.
After studying the minutes, analysts summarized their content by stating that although a number of Fed members expressed the opinion that additional monetary easing could bolster the US economic recovery if it continued to faltered, the meeting failed to agree on any imminent action. This lackluster approach by the Federal Reserve now adds even more pressure on the markets which are already stressed by a potentially weak US corporate earnings season, the European debt crisis and the global economic slowdown. In fact, many investors saw the Fed minutes as the last bastion of hope capable of producing any serious stock rally. As there now appears to be very little concrete support to prevent further declines, analysts are expecting a severe bearish sentiment to take a firm grip of the markets over the coming weeks.
The Euro endured another day of pressure on Wednesday causing the EURUSD to plummet to lows not seen since June 2010. The pair did rally earlier in the session in unison with the stock markets until the release of the disappointing Fed minutes injected severe bearish pressure on the EURUSD. After hitting a daily high at 1.2295, the pair then plunged by almost 90 pips before paring some of its losses to close at 1.2235. Unless European policymakers can quickly introduce new policies that are capable of lending support to the Euro, analysts are now advising that there is nothing much left to prevent the single currency from weakening even further, especially in the short-term. With such a strong bearish bias suffocating the EURUSD, consider selling the pair if price slips beneath 1.2214.
The pair surged early on Wednesday before being rejected by its important resistance level located at 1.5575. The GBPUSD was then subjected to intense bearish pressure following the release of the minutes from the Federal Reserve’s June meeting which demonstrated that the committee was still deeply divided over the need to introduce new stimulus measures in order to bolster the struggling US economic recovery. As a result, the GBPUSD plunged by over 70 pips producing a distinctive wick (high to low) in the process. With the global economy now facing a number of serious challenges that could cause the markets to weaken extensively over the coming weeks, the USD will strengthen from such developments in its capacity as a safe-haven asset. Consequently, sell the GBPUSD if price plummets below 1.5479.
The Australian dollar fared better than most other major currencies against the USD on Wednesday with the AUDUSD gaining nearly 60 pips during the session to close at 1.0245. The Aussie acquired support from the release yesterday of better-than-expected Australian economic data. In addition, the AUD managed to ward of the negative influences produced by the disappointing Federal Reserve minutes by receiving a boost from yesterday’s appreciating commodity prices. In particular, the bullish performance of crude oil, sugar, coffee and white metals helped to underpin the AUDUSD performance. With the Australian economy continuing to outperform that of the USA, the AUDUSD could well strengthen during the remainder of this week. As such, consider buying the pair if price can achieve a sustained break above 1.0281.
This pair continued to print new highs on Wednesday with the USHCHF surging by 30 pips to 0.9830, a value not seen since December 2010, before paring its gains and closing at 0.9810. The USD extracted support from the glum Federal Reserve minutes that demonstrated that the committee has no intentions of launching a third bout of quantitative easing in the imminent future. If the pair can maintain its bullish momentum then its next Fibonacci resistance level resides at 0.9930. Alternatively, if the Swiss France can reverse its current decline then an important support level is located at 0.9783. With a strong bullish bias dominating the directional movements of the USDCHF, buy the pair if price can surge above 0.9830.
The price of gold slipped again yesterday as the uncertainties posed in the Federal Reserve minutes prompted investors to seek the safety of the US dollar in preference to the riskier assets, such as gold. The precious metal has been under increasing pressure this month as the European debt crisis has continued to deteriorate. The Fed’s wait-and-see policy concerning the instigation of a new bout of quantitative easing is also providing support for the US dollar at the expense of gold. With the global economy facing new challenges almost daily, analysts expect the price of gold to weaken further, especially in the short-term. Consequently, sell this commodity if price breaks below $1,568.82 per oz.
The price of oil rose yesterday following the news that North Sea production could hit a record low in August. Nevertheless, as the oil markets are still dominated by a strong bearish sentiment, sell oil if its price falls below $83.65 per barrel.
The shares of Groupon plunged by 5.5% on Wednesday registering a record low of $7.72 in the process. This movement resulted after analysts expressed worries about the exposure of the leading online daily deal company to the European debt crisis since about one-quarter of the firm’s revenue is generated from that region. Investors are now expecting Groupon management to provide insights into how they intend to deal with this crisis.
Goldcorp informed the markets late Tuesday that it was revising its 2012 gold production forecasts downwards from 2.6 million ounces to between 2.35 million to 2.45 million ounces. Following this announcement, the shares of the second largest gold producer in Canada plummeted by 10.6% on Wednesday.
The Stock Markets plummeted yesterday following the release of the glum Federal Reserve minutes causing the shares of both Apple and Google to plunge with those of the former falling by 0.62% to $604.43 while those of the latter slumping by 1.81% to $571.19. With little in the way to support the markets, consider selling Apple if its share price slips below $600.43 and Google if its share price drops beneath $568.17.