July 13 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The US Labor Department reported on Thursday that the number of initial claims for unemployment benefits fell during the previous week by 26,000 to a four-year low of 350,000. However, this encouraging news did little to alleviate the concerns of investors who are becoming increasing worried about the faltering state of the global economy. In particular, evidence that US corporations are struggling to sustain their profit levels in the wake of the European debt crisis has already caused the S&P500 index to slump by over 3% since the start of July. Analysts summarized the unemployment news by stating that although the figure has inched its way downwards to lows not seen since March 2008, this improvement was still not radically changing the economic landscape. They also added that something much more special was required to propel the world’s economy out of its present doldrums.
Another economic indicator published yesterday disclosed that US import prices had plummeted during June by 2.7% recording their largest monthly drop in three years. This dramatic decline, which was caused by the recent steep fall in the price of imported oil, stroked fresh fears about rising inflationary pressures. Companies are continuing to revise their revenue forecasts downwards placing additional pressure on the stock markets. For example, Infosys advised investors yesterday that it was cutting its sales forecasts by a larger margin than it had previously advised citing that the global economic slowdown was reducing customer demand. Following this announcement, the internet technology giant, based in India, witnessed its shares crash by over 11%. In addition, after Supervalu announced that it was suspending dividends and was intending to undertake a complete business overhaul, the firm’s shares crashed by over 43% during yesterday’s session.
With little in the way to provide any serious Euro support, the EURUSD extended its losses on Thursday for the fourth consecutive day. After registering a new two-year low at 1.2166, analysts are now advising that the pair is vulnerable to a plunge below 1.2000 if the important support level located at 1.2150 gives way. After hitting a daily low, the pair did manage to generate a technical rally later in the day helping it to bounce out of its oversold state. Although the Euro now desperately needs some impetus to assist it in reversing its present decline, it is difficult to determine from which quarter such aid would materialize. This is especially so since global central banks are expressing no desire to run with the ball. As such, sell the EURUSD if its price tumbles below 1.2167.
After putting up a valiant resistance during this week, the GBP finally succumbed to the relentless pressure exerted by the USD on Thursday. The GBPUSD plunged by over 100 pips breaking below its 1.5400 level before rebounding against the important support level at 1.5392. Analysts are now advising that as long as the pair does not rally above its new resistance zone located at 1.5460/70, then it is favored to weaken further. In particular, if the GBPUSD can achieve a sustained break below 1.5400, it should then plummet to test its year-low level residing at 1.5236. With a strong bearish bias dominating the directional movements of this pair, sell the GBPUSD if price slips below 1.5391.
The AUD was subjected to intense pressure from the USD yesterday following the release of a disappointing Australian labor report and a sell-off in the commodity markets. The AUDUSD plummeted by over 80 pips to briefly pierce beneath 1.0100. The pair then rebounded by over 30 to close near 1.0130 after finding support at 1.0099. Despite attempting to rally during this week, the AUDUSD began to weaken on Thursday as a direct result of the mounting pressures exerted by a slowing Chinese economy on Australian businesses. As such, the main driver of the directional movements of the AUDUSD over the coming days is expected to be a strong bearish sentiment. Consequently, consider selling the pair if price tumbles beneath 1.0113.
The pair continued its endless march upwards on Thursday by achieving fresh highs not seen since the start of December 2010. The USDCHF surged by over 60 pips to a daily high at 0.9868 before retracting to close near 0.6849. Most technical indicators are now pointing to the pair strengthening even further. If the USDCHF can attain a clean break above 0.9867 then its next target is its important resistance level located at 0.9904. If undertaking such an option, traders are advised to protect their positions at placing stop-losses beneath 0.9839. With a strong bullish sentiment prevailing over the pair, consider activating a new CALL currency option using the USDCHF as its underlying asset if price is able to surge above 0.9867.
The price of gold slumped yesterday as investors fled to safe-haven assets, such as the US dollar, amid worries that the US Federal Reserve possesses no conviction to instigate further quantitative easing in the near future. The precious metal has traded almost flat during 2012 with its directional movements dominating by the financial strategies instigated by the world’s central banks. Consequently, the decline in the price of gold yesterday was in direct response to the lack of clarity expressed by the Fed in its June minutes concerning its future stimulus policies. With a strong bearish sentiment hanging over the gold markets, sell this commodity if its price slips below $1,563.10 per oz.
Global economic worries and diminished hopes of new stimulus moves by the Fed caused the price of oil to fall yesterday. With a strong bearish bias in control, sell this commodity if its price slumps beneath $84.01 per barrel.
Peugeot Citroen informed the markets yesterday that it planned to reduce its workforce by 8,000 as well closing a plant near Paris as a result of mounting losses caused by the European debt crisis. Following this announcement, the French firm’s shares dropped by 1.74% to record their lowest level in 25 years after plummeting 32% during 2012 already.
The appointment by the German car producer, Opel, of its fourth CEO in less than three years on Thursday serves to emphatically emphasize the serious problems faced by the automobile industry in austerity-ridden Europe. This is the firm’s latest move to address the 14 billion euro loss that it has recorded in the last 12 months.
The stock markets slumped yesterday amid a poor Fed response and weak corporate earnings causing the shares of both Apple and Google to slip with those of the former falling by 0.38% to $602.15 while those of the latter dropped by 0.15% to $570.36. With the markets struggling to find traction, consider selling Apple if its share price plunges beneath $597.84 and Google if its share price plummets below $569.81.