July 9 Weekly Market Review
Weekly market analysis by OptionRally
Financial Market Overview
The Stocks Markets endured a dismal time on Friday following the release of a disappointing US labor report. The US Labor Department advised that only 80,000 new jobs had been created by American employers compared to the forecasted figure of 90,000. The US Federal Reserve will now face increased pressure following this distressing non-farm payroll figure to instigate a new wave of quantitative easing in an effort to propel the US economy out of the doldrums. Following the publication of the labor report on Friday, the Stock Markets plunged as epitomized by the Dow Jones Index dropping by over 120 points during the trading session. The euphoria generated by the EU Summit in the previous week now seems just forgotten history as the yield of Spanish 10-years bonds surged above its critical 7% once again last Friday.
The markets will be seeking evidence this week to determine if the stimulus measures introduced by the European Central Bank last Thursday will work. This is because many investors are concerned because they do not think that the ECB has done enough. The markets were completely surprised and concerned when the Chinese central bank cut its interest rates last Thursday for the second time in a month. The need to implement such a dramatic movement implies that the Chinese government must be very worried about the state of their economy. A number of very important economic indicators are due for release this week which will shed light on exactly what this concern is all about including the Trade Balance, the Gross Domestic Product (GDP) and Retail Sales. Great efforts will also be expended over the coming days to assess what actions the US Federal Reserve will now consider following a spate of disappointing economic indicators released last week.
The Euro suffered against the USD last week by dropping nearly 400 pips to hit a 2 year low on Friday. The damage was done by the European Central Bank (ECB) cutting its benchmark interest rate last Thursday to an historic low of 0.75%. The EURUSD then extended its losses last Friday following the release of a very disappointing US labor report disclosing that only 80,000 jobs had been created by US employers during June. Important events this week are the ECB President Draghi speech today and the releases of the German Consumer Index on Wednesday and the ECB monthly report on Thursday. With the Euro in free-fall and little in the way to stop it, the EURUSD is presently subjected to a strong bearish sentiment. Consider, selling the pair if price drops below 1.2252.
The British pound fell against the USD on Friday for the fourth consecutive day following the publication of a distressing US labor report. The GBP is also suffering from the devaluing impact of a 50 billion GBP stimulus injection instigated by the Bank of England (BoE) last Thursday. The UK is scheduled to release a number of important economic indicators this week including Manufacturing Production (Tuesday), Trade Balance (Tuesday) and CB leading Index on Friday. In addition, the BoE Deputy Governor, Paul Tucker, is due to speak today. The GBPUSD established a well-defined bearish trend last week which is very likely to continue over the coming days. Fundamentally, the British pound is prone to further weakness because of the struggling UK economy. As such, look to sell the GBPUSD if price plummets beneath 1.5475.
The AUD fared much better than most other major currencies against the USD last week with the AUDUSD remaining almost flat during this period after closing last Friday just above its 1.0200 level. The AUDUSD managed to survive the ravages of the ECB and BoE stimulus announcements last Thursday as well as shrugging off the disappointment of another weak US labor report last Friday. There are a number of economic indicators scheduled for release this week which could influence the directional movements of the AUDUSD. China will post its CPI (Monday), Trade Balance (Tuesday) and Gross Domestic Product (Friday). In addition, Australia will publish its Home Loans (Wednesday) and Employment Change (Thursday). As the USD will benefit from the deteriorating European debt crisis and the global economy slowdown, consider selling the AUDUSD if price plunges below 1.0195.
The CHF struggled badly against the USD last week with the USDCHF breaking above its psychologically important 0.9700 to hit highs on Friday not seen since February 2011. After the release of the dismal US labor report last Friday, investors flocked to the USD in its role as a safe-haven asset amid fresh concerns about the deteriorating state of the US economic recovery. In addition, the Swiss Franc tracked the weakening Euro following the interest rate cut instigated by the ECB last Thursday. Switzerland is scheduled to publish just two important economic indicators this week which are its Unemployment Rate (Monday) and PPI (Friday). Unless these figures flag a significant improvement in the Swiss economy, the USDCHF should continue to strengthen this week. Consequently, buy the pair if price jumps above 0.9797.
The distressing US labor report issued last Friday prompted investors to flee gold along with stocks and commodities in preference of safe-haven assets, such as the US dollar. As a consequence, the price of gold slumped by almost 1.7% during the trading session on Friday amid fresh deflation worries. Although weak job growth should increase the prospects of a new stimulus injection by the US Federal Reserve that would boost gold in the long-term, a significant sell-off of riskier investments dominated last Friday’s trading action. With a substantial bearish bias now hovering over the gold markets, consider selling this commodity if its price tumbles below $1,578.21 per oz.
The price of oil also significantly weakened last Friday amid fears that the struggling US labor market is fuelling a global economic slowdown. As such, consider selling oil if its price slips under $84.02 per barrel.
The boards of both Yahoo and Facebook approved a deal last Friday aimed at settling contested patent lawsuits and creating a joint advertising partnership. The agreement involves cross-licensing of strategically important patents and the promotion of online advertising sales beneficial to both parties. The deal does not involve any monetary outlay by either company.
Informatica Corp informed the markets on Friday that its second quarter revenue would be worse-than-forecasted and cited delayed contracts as the primarily reason for this adverse development. After making this announcement, the data integration software maker then witnessed its shares plummet by almost 35% during last Friday’s trading session. In addition, a number of brokerages downgraded the company’s stock while others sliced their price targets.
The Stock sell-off last Friday caused by the disappointing US labor report dragged the shares of Apple and Google lower with those of the former slumping by 0.67% to $605.88 and those of Google dropping by 1.67% to $585.98. The stock markets are now facing increased bearish stress following the report issued last Friday. As such, consider selling Apple shares if price slips beneath $603.81 and sell Google if its share price drops below $585.36.