July 17 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The markets recorded moderate losses yesterday following the release of a disappointing US Retail Sales figure for June which disclosed a third consecutive monthly decline. This result not only missed analysts’ expectations of a minor increase but also produced further worrying evidence that the US economy was stagnating. Fortunately, Citigroup posted a better-than-expected earnings report which prevented a modest market drop from transforming into a complete rout. Although the third largest bank in the US succeeded in generating an improved revenue stream, bad asset losses caused its profits to slump by 12%. However, this result still impressed investors who helped the shares of the bank surged by 0.6% to close at $26.80. The positive Citigroup report followed closely on the heels of the one released by JPMorgan last Friday which ignited a market rally as epitomized by the Dow Jones Index surging by over 200 points during the final trading day of last week.
Analysts summarized Monday’s developments by stating that an intense struggle over market domination was now in progress between the encouraging earnings posted by the financial sector and the deterioration of the global economy in general. They also advised that such a contest does not bode well for the coming weeks. This is because many major US companies have already issued dire warnings about their looming weaker-than-expected revenue reports resulting as direct consequences of the European debt crisis and the global economic slowdown. Despite these gloomy forecasts, that markets are still remaining reasonably buoyant primarily due to the increasing hopes of a pending Fed stimulus intervention and also because the yields of US Treasury are at historic lows.
The pair dropped by almost 90 pips during the early part of yesterday’s session with the EURUSD hitting its support level located at 1.2182. Investors generated intense pressure on the Euro amid concerns that the release of bailout funds to debt-ridden Eurozone members may be delayed. A top German court advised on Monday that it would not produce any rulings until mid-September about whether amendments to the European Stability Mechanism (ESM) are compliant with German law. The EURUSD pared back nearly all of its losses later in the session after weak US Retail Sales fueled increased optimism that the US Federal Reserve will instigate new stimulus measures in the very near future. As further quantitative easing is becoming more of a certainty and will devalue the USD, buy the EURUSD if price breaks above 1.2311.
The British pound received a boost yesterday after weak US Retail Sales increased the prospects of an imminent USD devaluation if the Federal Reserve should soon instigate additional quantitative easing to order to bolster the obviously faltering US economic recovery. The GBPUSD tracked the bullish movement of the EURUSD by hitting a daily high at 1.5652 before retracting by almost 20 pips to close at 1.5631. Analysts are now advising that if the pair can achieve a sustained break above its important resistance zone located between 1.5680 and 1.5690, then the door will be open to surge well above 1.5700. With a possible USD devaluation looming, buy the GBPUD if price jumps above 1.5687.
The Australian dollar etched out a modest gain against the USD yesterday after it benefitted from the disappointing US Retail Sales figure. The pair rose by about 30 pips to close at 1.0251. A key risk event will occur today with the release of the minutes from the last meeting of the Reserve Bank of Australia (RBA). Investors will securitize this document very carefully in order to determine whether recently published economic indicators are correctly indicating that the Australian economy is slowing down. In particular, they will be keen to see if the RBA debated the implications of the weak June labor report which disclosed that the Australian jobless rate stood at 5.2%. With the prospects of a devaluation of the USD rising by the day, buy the AUDUSD if price climbs above 1.0279.
The Swiss Franc weakened extensively against the USD early during yesterday’s session with the USDCHF hitting a daily high at 0.9862. The CHF tracked the movements of the Euro against the USD as the single currency weakened considerably amid investor worries about delays in the bailout funds to troubled Eurozone members, such as Spain and Greece. However, later in the day weak US retail sales sparked hopes of a forthcoming Fed stimulus intervention which would effectively devalue the USD. As a result, the USDCHF plunged by almost 70 pips to close at 0.9780. With a new bearish bias beginning to control the directional movements of this pair, consider selling the USDCHF if price drops beneath 0.9751.
The price of gold inched slightly lower on Monday as the worse-than-expected US Retail Sales caused investors to starting focusing their attention on the all-pervading Ben Bernanke testimony before the US Congress that commences today. The markets will be on tenterhooks to learn whether the Fed Chairman will provide any indications of imminent new quantitative easing. Such an action would boost the price of gold as it normally benefits from any stimulus actions introduced by the global central banks. With growing optimism in the air of a Fed intervention, consider opening a new CALL commodity option with gold as its underlying asset if its price surges above $1,593.82.
Oil prices surged yesterday after disappointing economic data fueled prospects of an imminent Fed stimulus intervention. With a new bullish bias hovering over the oil markets, buy this commodity if its price breaks above $91.19 per barrel.
Yesterday, Microsoft presented the new version of its Office software, the firm’s main revenue earner, by advising that its improved interface will allow Office to integrate smoothly with the soon-to-be-released Windows 8 operating system. In addition, a spokesperson advised that one of the prime specifications of this latest build was to specifically support touchscreen devices. Following these announcements, the shares of Microsoft rose by 0.14% to $29.43 despite a general decline in the markets yesterday.
Yahoo announced on Monday that it had poached Marissa Mayer from Google so that she could become its new CEO, starting today. Investors welcomed this news by helping the shares of Yahoo to appreciate by 2% during yesterday’s trading.
Weak US Retail Sales caused the stock markets to drop yesterday creating a mixed reaction from Apple and Google with the shares of the former rising by 0.34% to $607.00 while those of the latter fell by 0.44% to $573.96. With the markets waiting for fresh clarification from the Fed, consider buying Apple if its share price climbs above $608.04 and sell Google if its share price drops beneath $573.17.