July 30 Weekly Market Review
Weekly Market Analysis by OptionRally
Financial Market Overview
Speculation about additional quantitative easing caused the stock markets to rally for the third consecutive day on Friday epitomized by the Dow Jones Index surging above its psychologically important 13,000 level and the S&P500 hitting highs not seen since May 4th. The markets gained a boost late last Friday after a Bloomsburg report disclosed that the President of the European Central Bank, Mario Draghi, intends to convene with the President of the Bundesbank, Jens Weidmann, to debate ideas about how to stem the endless stream of problems arising from the European debt crisis. Economic data released last Friday revealed that the US Gross Domestic Product (GDP) had contracted to an annual growth rate of just 1.5% as a result of a substantial slowdown in consumer spending. Stocks completed their best three day rally this year on Friday after an article in a leading French newspaper advised that the ECB and Euro-zone governments were on the brink of introducing new policies intended to radically reduce Italian and Spanish borrowing costs.
Analysts are now predicting that the three main issues which European authorities will need to address this week are: What are our most viable options to resolve the European debt crisis? Will all the 17 member nations of the Eurozone support them? What is a realistic timescale in which to implement the select policies? As such, the Markets will be on tenterhooks while waiting for any statements about such measures to be issued from the ECB meeting concluding this Thursday. Investors will also focus on the two-day Federal Open Market Committee (FOMC) meeting because the deteriorating US economic slowdown and recent Fed dovish comments have increased expectations that a new bout of quantitative easing could be announced. The publication of the all-pervading US non-farm payroll figures is scheduled for this Friday. Expert consensus is predicting that US employers have created 100,000 new jobs in July and that the unemployment rate will remain unchanged at 8.2%.
The Euro was spiraling downwards against the USD during the early part of last week until French and German leaders united with Draghi by pledging that they will do whatever is needed to save the Euro. This action helped the EURUSD to rally last Thursday and Friday. There are a number of important economic indicators scheduled for release from Europe this week including the Retail PMI (Monday), German Unemployment Change (Tuesday), Final Manufacturing PMI (Wednesday), PPI (Thursday) and the Rate decision (Thursday). With assertive stimulus talk in the air, a bullish sentiment should prevail over the EURUSD this week. As such, buy the pair if price can break higher than 1.2369.
The British pound strengthen considerably against the USD towards the end of last week as it took advantage of the release of a spate of weak US economic indicators as well as feverish speculation that the US Federal Reserve was on the brink of instigating a new bout of quantitative easing. The UK is scheduled to release a host of important economic indicators this week including CBI Realized Sales (Monday), Manufacturing PMI (Wednesday), Construction PM (Thursday), Official Bank Rate (Thursday) and Services PMI (Friday). Despite its impressive performance last week, the British pound is still vulnerable to further weakness because of the faltering UK economy and the ongoing drama in Europe. Consequently, sell the GBPUSD if price slumps beneath 1.5623.
Speculation about forthcoming stimulus action from both Europe and the USA helped to strengthen the Australian dollar towards the latter part of last week with the AUDUSD hitting highs not seen since the end of March by surging to a Friday closing price at 1.0479. Australia will post a number of important economic indicators this week including Building Approvals (Monday), Commodity Prices (Wednesday), Retail Sales (Wednesday) and Trade Balance (Wednesday). The directional movements of the AUDUSD are currently dominated by a bullish bias arising from a struggling US economic recovery and the deteriorating European debt crisis. As the pair is expected to extend its gains this week especially if better-than-expected Australian economic data is published, buy the AUDUSD if price can leap higher than 1.0491.
This Swiss Franc rallied against the USD towards the end of last week as it was able to extract strength from disappointing data portraying a deteriorating US economy as well as speculation about additional forthcoming stimulus action by the US Federal Reserve. Switzerland is scheduled to post three important economic indicators this week including UBS Consumption Indicator (Tuesday), Retail Sales and PPI on Thursday. Many analysts are now advising that the CHF rally last week could just be a temporary blip before the USDCHF resumes its bullish path upwards. They have made this conclusion based on the strong possibility that the USD will strengthen this week in its mode as a safe-haven asset if the European debt crisis continues to deteriorate. As such buy the USDCHF if price can sustain a clean break above 0.9807.
The price of Gold surged higher last Friday before paring some of its gains as investors opted to take profits following the release of data disclosing that the US economy growth had slowed and that consumer confidence was faltering. The precious metal produced a good performance last week especially after the President of the European Central Bank (ECB), Mario Draghi, pledged that the ECB will do whatever it takes to preserve the Euro. As gold benefits when central banks activate stimulus action, a strong bullish bias is currently presiding over the gold markets. Consequently, buy this commodity if its price can break above $1,620.90 per oz.
The price of oil appreciated on Friday for the fourth consecutive day amid speculation of fresh stimulus action from both Europe and the USA. With a strong bullish sentiment in control, buy oil if its price jumps above $90.65 per barrel.
Facebook took a pasting on Friday as the shares of the social network company plummeted by 17% to a new low reducing its value by almost $10 billion. As a result, the market capitalization of the firm now stands at $48 billion which is half its launch value at its IPO held in May. Although Facebook posted quarterly revenues that beat market expectations, investors penalized its shares after becoming frustrated that no viable assurance was presented about the company’s future intentions.
After Starbucks posted worse-than-expected quarterly profits and revised its 2012 forecasts downwards last Friday, the biggest coffee chain in the world witnessed its shares plunge by over 11% recording its largest one day collapse in over 12 years. The company cited a slowdown in the usage of its US coffee shops as the premier reason for these disappointing results which caused the firm to lose $4.4 billion of its market capitalization by the end of Friday’s trading session.
Feverish speculation about forthcoming stimulus action from the USA and Europe caused the markets to surge on Friday dragging the shares of both Apple and Google higher with those of the former climbing by 1.79% to $585.16 while those of the latter rocketed by 3.52% to $634.96. With both the ECB and the Fed on the brink of instigating new bouts of quantitative easing, a significant bullish bias now hovers over the stock markets. Consequently, consider buying Apple if the price of its shares leaps higher than $589.01 while buy Google if its share price breaks above $635.49.