June 12 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Hope turned to despair yesterday as investors’ initial enthusiasm for a European bailout plan to rescue Spain’s submerging banking sector slumped dramatically. After examining the details of the new rescue package, the markets mood grew sour amid concerns about its potentially negative influence on bondholders and public debt. Worries were also expressed about how struggling members such as Greece and Ireland would react to the Spanish bailout since it contains no austerity measures unlike theirs. Despite Spain’s Prime Minister, Mariano Rajoy, explicitly stating that the desperately-needed aid was agreed without the necessity for international supervision, more confusion arose after German and EU officials vehemently contradicted this viewpoint yesterday. The key problem is that nobody knows where the funds will come from despite the EU claiming a great victory.
Globally equities soared initially yesterday when the markets were opened but retracted sharply later in the day. A particularly worrisome sign was the renewed rise of Italian and Spanish bond yields on Monday as concerns started to mount over the quality of the Spanish rescue package. Markets become even more unsettled after Cyprus strongly advised that it may also need to seek a Eurozone bailout within the next few weeks which would then make it the fifth nation of the seventeen member currency bloc to do so. As this weekend approaches, market fears will begin to boil as a result of the looming Greek general election. This is because if a left-wing party should win, which is hostile to the severe austerity measures of the current Greek bailout, then the Eurozone could be thrown into totally disarray.
This movement was caused by an ebullient investors’ response to the news of the Spanish bank bailout plan announced over the weekend. However, the EUR pared most of its gains against the USD yesterday as the deal began to lose its shine. Basically, investors grew worried that the final result of this development would be to just straddle Spain with an even larger debt mountain. In addition, concerns further increased that because the rescue plan contains no austerity measures, Greeks may react angrily to this detail in their elections this Sunday because of the strict repayment conditions imposed on them. If this is the case and an anti-bailout party is elected, a Greek exit would throw the Eurozone and its currency into utter chaos. Consequently, as market nerves will be on tenterhooks for the rest of this week and with a strong bearish bias re-asserting itself yesterday, consider selling the EURUSD if its price falls below 1.2445.
The GBPUSD re-commenced its descent after a good bullish relief rally last week. The pair is trading in a well-developed bearish trend which was recently formed following the crossover of the faster-moving 50MA (blue line) dropping under the slower moving 100MA (green line). In fundamental terms, the USD gained new support as a safe-haven asset from the developments in Europe yesterday. After studying the details of the new Spanish bank bailout plan, analysts are coming to the conclusion that the Eurozone simply does not have the infrastructure in place to instigate such a fiscal maneuver. Of major concern is how the Greek populace will consider the superior terms of the Spanish deal compared to their own, which is swamped with severe austerity. This could, in fact, be the straw that breaks the camel’s back leading to the election of an anti-bailout party resulting in a Greek exit from the Eurozone. As any negative developments from Europe will weigh heavily on the GBP, look to sell the GBPUSD if its price slumps beneath 1.5449.
AUD had a tough time against the USD on Monday with the AUDUSD collapsing by over 110 pips to close well below 0.9890. The pair banged its head against the upper trendline of its well-constructed bearish trend before retracting downwards. This technical development suggests that the AUDUSD should now experience further weakness. From a fundamental standpoint, the AUD has greatly difficulty competing with the USD when global economic conditions are under stress. In particular, the Aussie is prone to weakness following negative events developing in Europe and China. In contrast, the USD surges in value in its capacity as a safe-haven asset when the markets turn to risk aversion as they are at present. With the Eurozone’s great effort to produce a Spanish bank bailout package over the weekend degenerating into nothing more than a complete shambles, the AUDUSD could fall extensively this week. With such a bearish sentiment in the driving seat, consider selling the pair if price plummets below 0.9842.
When the Forex market opened on Sunday, the USDCHF plunged by over 100 pips as the markets initially welcome the news of the Spanish bailout. However, Monday saw the USDCHF regain all of this significant loss by recovering the full 100 pips to close at about 0.9612. Have the Eurozone officials now totally blown it after waffling about for so many months failing to take any well-constructed actions? The markets certainly appear to be on the edge of a nightmare as some of the ramifications of the Spanish deal could now adversely influence the outcome of the Greek elections this weekend. Following such an intense rejection of this European move, the USDCHF appears to have only one direction to move, which is upwards. Consequently, as the dominating theme is bullish, look to buy the USDCHF if its price surges above 0.9648.
The price of gold staged a dramatic comeback yesterday following a massive collapse in the equities towards market close as demonstrated by the Dow Jones Index plunging by over 140 points. Investors became ever-increasingly concerned as Monday progressed over the details of the European debacle to rescue Spanish banks, which was agreed over the week. As such, they rushed to seek safer-assets as their fears escalated over pending developments such as the looming Greek elections scheduled for this coming weekend. As gold has lately remained its shine as a sanctuary during times of risk aversion, it succeeded in closing at almost $1,600 per oz. With the possibility that the precious metal will appreciate further as a hedge against political uncertainties, consider buying gold if its price climbs above $1,599.64 per oz.
The new stresses emulating out of Europe yesterday increase doubts over the future demand for oil forcing its price downwards. With a strong bearish bias simply strangling the oil market, consider selling this commodity if its price tumbles below $82.00 per barrel.
Apple’s CEO, Tim Cook, introduced a new range of software and hardware products yesterday in a move to keep its main rivals at bay, such as Google. Cook revealed details of Apple’s own mobile mapping service as well as explaining that an enhanced Siri voice-search will be integrated into the iPad. As Apple and Google are presently engaged in an intense battle over products such as cloud computing and smartphones, Apple’s strategy is to attract and keep clients using its products’ operating environments.
Following an announcement made yesterday by one of its chief rivals, Green Mountain Coffee Roasters saw its shares plunged by 10% to a one year low. Kroger Co informed the markets that it intended to install single-serve coffee cups into its Keurig machines in direct competition with the Green Mountain label.
Both Apple and Google shares collapsed in the wake of the dramatic equity sell- that occurred late in the day with those of the former dropping by 1.58% to $571.17 and the latter’s by 2.06% to $568.50. With a strong bearish bias again swamping the stock markets, sell Apple if its share price plunges beneath $569.91 and consider selling Google if its share price slumps below $567.00.