July 20 Daily Market Review

Daily Market Analysis

Daily Market Analysis by OptionRally

Financial Market Overview

Encouraging profits and forecasts posted yesterday by technological corporate giants outweighed the publications of disappointing US economic indicators which helped to propel stocks higher as demonstrated by the S&P500 hitting a 2.5 month high and the Dow Jones Index gaining over 30 points. Earlier in the session the markets came under pressure after data disclosed that US home re-sales were lower than expected for June and that manufacturing in the US mid-Atlantic belt had registered a third consecutive monthly decline. In addition, the US labor department reported a surge in the number of applications for unemployment benefits during the previous week. However, the markets received a welcoming boost later in the day after IBM revised its full-year forecasts upwards causing its shares to soar by 3.8%.

EBay then witnessed its shares leaping by 9.2% after it issued better-than-expected quarterly earnings citing that the main reasons for this impressive performance was an increase in clients using both its Paypal services and its online marketplace. Investors were also impressed with Qualcomm after the company forecasted a boost in sales for the fourth quarter of 2012 despite revising its earnings forecasts downwards for the third one. Against a backdrop of a deteriorating economic climate, equities are just about holding their own for a number of important reasons. They have gained support not only from a spate of good corporate reports but also because historically high Treasury yields have helped to keep investors focused on stocks. In addition, previous bouts of quantitative easing by the Federal Reserved have been credited with bolstering equities and commodities during difficult times.

EUR/USD

This pair oscillated between gains and losses on Thursday as disappointing US economic indicators and a German warning contested control of the directional movements of the EURUSD against impressive US corporate revenue reports. These effects with the pair surging to a daily high at 1.2322. The EURUSD then plunged by almost 100 pips to a daily low at 1.2227 before paring its losses and closing at 1.2279. The German Finance minister scared the markets when he warned that the troubles of debt-ridden Spain were not resolved by any means and that the Spanish government must take full responsibility for its banking sector’s bailout fund. Weak economic data then provided further evidence that the global economic recovery has faltering. Against these depressive developments, good earnings posted by US corporations provided some cheer later in the day. With the pair trending lower, sell the EURUSD if price falls below 1.2235.

GBP/USD

Despite the release yesterday of a disappointing UK Retail Sales figure, the British pound still managed to extract strength from a spate of disappointing US economic indicators to soar against the greenback to a monthly high at 1.5735. After falling earlier in the session, the GBPUSD then rallied strongly by surging almost 100 pips before retracting to its closing price at 1.5722. Analysts are now advising that if the pair can remain above its psychologically important 1.5700 level, then it should proceed within a larger bullish corrective phase to test its important resistance level at 1.5846. With this analysis in mind, consider buying the GBPUSD if price can achieve a sustained break above 1.5772.

AUD/USD

This Australian dollar strengthened against the USD on Thursday for the third time in four consecutive days. During this process, the AUDUSD powered its way through its important resistance level located at 1.0360 before achieving a sustained break above its psychological 1.0400 level to hit highs not seen since late April. The AUD dismissed any negativity produced by the release of a disappointing business survey issued yesterday by gaining support from strong Australian corporate demand. If the pair can hold above 1.0400, then analysts expect a strong bullish sentiment to propel the AUDUSD higher targeting the mid 1.0500 region. As such, buy the AUDUSD if price can jump above 1.0467.

USD/CHF

The USDCHF experienced a similar trading day to the EURUSD on Thursday with two camps of powerful influences competing to gain dominance over its directional movements. Consequently, the pair fluctuated between losses and gains before recording a modest daily increase of about 15 pips. The USDCHF was buffered between disappointing US economic indicators, which strengthened the USD, and strong corporate earnings reports, which weakened the greenback. With the pair still dominated by a strong bullish bias, consider activating a new CALL currency option with the USDCHF as its underlying asset if price can attain a clean break above 0.9811.

COMMODITIES

Following two days of consecutive losses, gold reversed this trend yesterday by surging over 0.6% as it benefitted from a general dollar weakness. The precious metal acquired further strength as it tracked oil prices higher amid increasing tensions in the Middle East. Gold has now been range-trading for the past three months. Analysts are citing that the main reason for this sideways movement is that investors are just unsure about whether another bout of quantitative easing will be instigated by the US Federal Reserve. As the hedging appeal of gold against inflation is very sensitive to the stimulus actions of central banks, investors have little confidence at present in trading gold. With the global economic slowdown still exerting pressure on this commodity, sell gold if its price drops below $1,578.50 per oz.

Concerns that the increasing tension in the Middle East could affect the supply of oil, the price of this commodity climbed higher on Thursday. As the oil markets are influenced by a strong bullish bias, buy oil if its price breaks above $93.57 per barrel.

STOCKS

Morgan Stanley informed the markets yesterday that it intends to release over 1,000 employees by the end of 2012 as part of its part to confound low trading volumes and a deteriorating global economy. The investment bank reported a 24% collapse in second quarter revenues yesterday and cited the European debt crisis as one of the main reasons for this disappointing result. Following these announcements, the shares of Morgan Stanley slumped by 4.4% during yesterday’s session.

Dish Network reported on Thursday that it had lost just 10,000 clients in the previous three months which was much smaller than analysts’ expectations of 87,000. As a result, impressed investors boosted the shares of the company by 3% yesterday.

Strong corporate earnings from a number of technological giants helped propel the shares of both Apple and Google higher yesterday with those of the former surging by 1.33% to $614.32 while those of the latter leapt by 2.12% to $593.06. With a strong bullish sentiment presiding over the markets, consider buying Apple if its share price jumps above $615.12 and buy Google if its share price breaks above $595.90.

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