July 4 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Following a spate of disappointing global economic indicators issued on Monday, the Markets were pleasantly surprised when the US Commence Department advised yesterday that new orders for manufacturing goods increased by 0.7% in May easily beating the expected forecast of 0.2%. In response, investors drove the markets higher on Tuesday as epitomized by the Dow Jones Index gaining 72 points during the shortened session. Trading volumes are anticipated to be low today with the markets closed for the US Independence Day national holiday. However, analysts then predict that both trading volatility and volume will increased dramatically tomorrow ahead of the release of the omnipresent US non-farm payrolls on Friday. After the US ISM manufacturing figure released on Monday disclosed that this sector of the economy had contracted for the first time since July 2009, expert consensus is now predicting that another poor labor report on Friday will force the Federal Reserve to instigate additional stimulus measures.
European stocks appreciated for the third consecutive day as expectations have risen that central banks will need to instigate fresh quantitative easing in order to boost the faltering global economy following the release of much worse-than-expected international economic indicators in recent weeks. A very important event is scheduled on Thursday when the European Central Bank (ECB) is expected to cut its benchmark interest rate by 0.25% to an historic low of 0.75%. However, many investors are now worried that even this dramatic move may still not be enough to appease the financial markets who are already concerned about the euphoric, but unsubstantiated, announcements released by politicians attending the EU Summit last Friday. This is because the grand plans issued may just be words that cannot be solidified into action.
The Euro etched out a small gain against the USD yesterday amid a growing belief that global central banks will need to introduce further stimulus measures in order to bolster the world’s economy following a spate of disappointing economic data releases posted this week. If the ECB announces aggressive action on Thursday by cutting its interest rate and signaling more substantial monetary easing is in the pipeline, then such measures may be sufficient to instigate a summer stock rally providing strength to riskier currencies such as the Euro. With this analysis in mind, consider buying the EURUSD if its price jumps above 1.2657.
The GBPUSD experienced an indecisive trading day on Tuesday ahead of the US Independence Day national holiday and the all-prevailing Bank of England (BoE) meeting to be held on Thursday. The pair failed in its bid to stay above its important level at 1.5700 by plunging earlier in the session to a daily low at 1.5655. The GBP then rallied by almost 40 pips later in the session to close near 1.5690. The markets are now waiting in anticipation for the outcome of the BoE meeting which will influence the future directional movements of the GBPUSD especially over the short-term. The central bank is expected to instigate an additional GBP50bn of stimulus measures to order to help bolster the US economy which recently reverted back into recession. As such a move would effectively devalue the GBP, look to sell this pair if price slumps beneath 1.5651.
The Reserve Bank of Australia (RBA) decided to maintain its interest rate at 3.5% on Tuesday after evaluating whether additional stimulus was necessary to protect the Australian economy from the ravages of the European debt crisis and a general slowdown in the global economic recovery. After the RBA selected to take no immediate action but instead would keep its options open, the AUD inched higher against the USD with the AUDUSD nudging closer to its psychological 1.0300 level. In contrast, to the general global economic gloom, the Australian economy has unexpectedly performed quite well this year with its Gross Domestic Product recording its fastest growth rate in nearly four years. One of the primary reasons for this success story is the nation’s booming mining industry which is constantly catering to the sizeable demands of India and China. On this positive note, consider opening a CALL currency option with the AUDUSD as its underlying asset if price can surge above 1.0291.
The CHF notched up a small gain yesterday against the USD during an indecisive session as the markets prepared to close early ahead of the US Independence Day national holiday. The USDCHF surged to a daily high of 0.9562 before retracting by over 40 pips to close about 0.9520. An interesting development occurred on Tuesday when Standard & Poor’s Ratings Services cut the credit ratings of nine Swiss banks from stable to negative. An accompanying statement advised that these actions were taken because the price increases of Swiss residential real estate over the last three years posed a risk for Swiss banks with mainly domestic exposure. In addition, if this trend continues then ratings may have to be downgraded even further. With a degree of uncertainty hanging over the USDCHF, sell the pair if price drops below 0.9487 or buy it if price leaps higher than 0.9569.
Gold prices soared by 1.5% hitting a two-week high yesterday amid growing hopes that increasing signs showing a slowdown in the US economy recovery will prompt the US Federal Reserve to instigate additional quantitative easing. Gold surged back above its psychologically important level of $1,600 per ounce and has now gained almost 5% in the last two days after an US economic indicator revealed on Monday that US manufacturing had contracted during June for the first time in almost three years. Investors are becoming more confident that the Fed will now act this time because of the deteriorating European debt crisis and slowdowns in both the Chinese and American economic recoveries. As such moves would benefit gold, consider buying it if its price breaks above $1,623.50 per oz.
The price of oil strengthened on Tuesday as hopes grew that the central banks will have to intervene with additional stimulus in order to bolster a struggling global economy. .As the price of oil will rise if such measures are introduced consider selling this commodity if its price climbs above $88.59 per barrel.
In a dramatic move on Tuesday, Bob Diamond, the chief executive at Barclays, resigned following intensive pressure from regulators and politicians encouraging him to do so. The bank has already confessed to falsifying its borrowing costs used to determine interbank rates between late 2007 and May 2009. Diamond has in charge of the relevant investment sectors during this period. Barclays faces fines of $453 million imposed on it by U.S. and British authorities.
News emerged on Tuesday that troubled JPMorgan had been subpoenaed by Energy regulators twice already in the last three months amid allegations that the bank attempted to manipulate the power industry in California and the Midwest. A petition was filed in the US federal courts yesterday demanding JPMorgan releases key 2010 and 2011documentation relevant to its actions at that time.
The markets climbed yesterday on hopes that the central banks will introduce fresh stimulus dragging both Apple and Google higher with the shares of the former rising by 1.16% to $599.41 while those of the latter climbed by 1.27% to $587.83. With a bullish bias dominating, consider buying Apple if its share price breaks above $599.95 and Google if its share price leaps higher than $594.34.