July 24 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Fears that Spain could soon become the fourth Eurozone member to officially apply for a full financial bailout scared investors on Monday to the point that they propelled the markets sharply downwards as typified by the Dow Jones Index plunging by over 100 points for the second consecutive trading day. After the Spanish debt-ridden region, Valencia, disclosed the seriousness of its fiscal situation, the increasing prospects that the fourth largest economy in the currency bloc will need to seek financial aid caused panicky stockholders to flee riskier assets for the sanctuary of safe-havens, such as the US dollar and the US, German and British Treasuries. The yields of Spanish 10-year bonds hit another historic high at 7.5% yesterday which is well above their critical level of 7% deemed to be the point at which Spanish borrowing costs are no longer sustainable.
The situation grew even worse on Monday after the markets learnt that as many as six Spanish regions, including Valencia, may be forced to request financial assistance from their central government. This drama resulted in US Treasury notes plummeting to their lowest value since the early 1880s and the yields of the German 10-bonds plunging to historic lows. Investors are now becoming increasingly anxious because Spain needs to find 20 billion euros by next Monday to repay urgent bondholders’ debt. Despite these escalating financial woes, the Spanish Economy Minister advised yesterday that his country still does not require a full bailout package, equivalent to the ones recently sought by Portugal, Greece and Ireland. However, many prominent market analysts do not agree with this statement by advising that the week has started briskly with risk aversion surging amid accelerating concerns about Europe and especially Spain whose debt crisis is spiraling out of control.
The Spanish drama involving the possible need for a number of regions to apply for financial assistance exerted fresh pressure onto the Euro yesterday with the EURUSD plummeting to a low of 1.2066, a level not seen since early June of 2010. The pair did rally later in the session, as the markets significantly pared losses, by breaking back above 1.2100 to close at 1.2139. Although the EURUSD is gaining support from the releases of better-than-expected corporate revenue reports, this influence is completely overshadowed by the negativities generated by the deteriorating European debt crisis. Consequently, consider selling the pair if price can attain a clear break beneath 1.2111.
Although the British pound produced an encouraging performance against the USD last week by gaining strength from a weakening USA economy, the GBPUSD fell by over 50 pips yesterday before locating a solid support at 1.5485 as European concerns resurfaced and took center-stage. The pair slumped for the third consecutive day, including Sunday, after the Spanish troubled region, Valencia, announced last Friday that it would need to apply for financial aid from its central government. The directional movements of this pair should now be dominated this week by the all-prevailing bearish influences of the European debt crisis. As such, sell the GBPUSD if its price slips below 1.5480.
This Australian dollar pared most of the impressive gains it acquired last week against the USD as the AUDUSD extended its losses yesterday by dropping over 40 pips. The pair successfully defended its psychologically important 1.0200 level by recording a daily low at 1.0240 before rallying to close at 1.0278. The AUDUSD now faces the strong possibility of further weakness this week as the woes of the Spanish drama will most likely control its directional movements causing the USD to strengthen in its capacity as a safe-haven asset. Consequently, consider activating a new PUT currency option using this pair as its underlying asset if price can achieve a sustained break below 1.0241.
Spanish troubles propelled the USDCHF to a fresh high at 0.9950 yesterday, which is a level not seen since late November 2010. The pair surged by over 40 pips earlier in the session as new European concerns took center-stage before retracting back below its daily opening price as the CHF pared its losses later in the day. The CHF is now expected to come under further pressure from the USD during this week as the deteriorating European debt crisis should provide considerable support for the greenback in its role as a safe-haven asset. With a strong bullish sentiment prevailing over this pair, look to buy the USDCHF if it price is capable of attaining a sustained break above 0.9912.
After Spain informed the markets on Monday that it had slumped into a deeper recession during its second quarter, the price of gold was subjected to intense pressure as it fell in unison with plunging stocks and oil prices. Data released yesterday suggested that Spain was moving ever closer to the brink whereby it will be have no option but to apply for a full sovereign bailout, similar to Greece. However, the precious metal did manage to successfully pare some of its losses later in the day following an announcement from the International Monetary Fund (IMF) advising that it planned to help Greece achieve its debt obligations. With a bearish sentiment presiding over the gold markets, sell this commodity if its price drops beneath $1,575.86 per oz.
Concerns that the demand for oil could be adversely affected by new European woes caused its price to slump yesterday. With a dominating bearish bias in control, sell oil if its price slips below $86.81 per barrel.
The Chinese oil company, CNOOC Ltd, agreed to purchase the Canadian oil developer, Nexen, for $15.1 billion on Monday. This acquisition, if successful, will be the largest foreign takeover ever attempted by China causing the state of Ottawa to now make a difficult choice between the benefits of foreign investment compared to the importance of its national security. The shares of Nexen surged by 53% yesterday after its board of directors unanimously approved this deal.
Following McDonald’s Corp publication of lower-than-expected profits for its second quarter on Monday, the hamburger chain witnessed its shares plunging by 2.4% during yesterday’s trading session. The company cited the stronger dollar and the global economic slowdown as the prime reasons for this disappointing result.
Strong corporate earnings released by Google last Friday continued to propel its shares higher yesterday by 0.94% to $616.59. In contrast, falling stock markets caused the shares of Apple to slip on Monday by 0.08% to $603.83. With fresh Eurozone woes subjecting the markets to a strong bearish bias, consider selling Apple if its share price falls below $603.11 and sell Google if its share price slumps beneath $614.15.