June 13 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Equities managed to rally yesterday as investors took the opportunity to purchase bargains in both industrial and energy sectors. Another positive development that helped alleviate market nerves occurred when the yields of Spanish bonds retracted from their recent highs. Still, the indices have fallen extensively this month because of an apparent slowdown of the US economic recovery and the deterioration in the European debt crisis. The markets are even struggling to gain any traction following the announcement over the weekend of the 100 billion euro rescue package for the ailing Spanish banking sector. Analysts are questioning whether this move will only add to the debt burden of Spain over the long-term as well as identifying over significant holes in the details of the deal.
Earlier yesterday, equities slumped in value as the 10 year Spanish bond yields hit an historic high in a movement that emphasizes the lack of market support for the new bailout plan. Analysts summarized the situation by stating that the daily stress emulating from Spain will only be amplified as this week progresses because of the looming Greek election this Sunday. As such, trading is expected to remain very volatility over the coming days especially towards the daily close of the European markets because of the uncertainties casted by the Greek political situation. In fact, one of the main problems of the Spanish bailout was that it appears to have been quickly assembled in order to appease the markets and stop the run on Greek banks turning into a stampede. Unfortunately, this objective may not have been achieved because the Spanish relief package could unwittingly just irritate the Greek populace as no austerity strings are attached to it. The Greeks, on the other hand, are enduring severe hardships because of the harsh cutbacks imposed on them in order to gain their financial aid.
Throughout the day, the EURUSD tended to oscillate about its 1.2500 mark. The pair hit plunge to a low of 1.2443 in unison with the rise of Spanish 10 year bond yields to their highest level ever recorded since the introduction of the single currency. Analysts are advising that the markets should now expect any Euro strength to be short-lived ahead of the uncertain and potentially market-moving Greek election scheduled for this coming Sunday. They also concluded that investors will be very reluctant to hold risky bullish EURUSD bets ahead of this pivotal event and that selling any Euro rallies will be the order of the day. With such a depressing analysis submerging the Euro, the EURUSD will be subjected to a significant bearish sentiment for the rest of this week. Consequently, consider selling the pair if price can achieve a sustain break below 1.2405.
This result was achieved by the support provided from EURGBP selling which was produced as a result of mounting concerns over the Spanish bailout plan. The pair also dismissed a disappointing release of a British economic indicator on Tuesday which demonstrated that the UK manufacturing output had surprisingly declined sharply in April. Analysts explained that this data was a clear indicator that the deterioration in the European debt crisis was now significantly affecting the UK economy. The GBPUSD did fall earlier in the day as the yields of 10 year Spanish bonds hit their highest level since the birth of the single currency. Despite a good bullish performance yesterday, the pair is still experience a significant bearish sentiment because the USD is gaining continuous support as a safe-haven asset from the European chaos. As such look to sell the pair if its pair falls beneath 1.5510.
Yesterday, the Australian dollar fell against the USD in unison with the rising yields of Spanish 10 year bonds. This rally was fuelled by the release of a number of important US economic indicators. Although the monthly budget statement almost matched markets expectations with a reading of $124.60 billion, the IBD/TIPP Economic Optimism registered a worse-than expected result for May at 46.7 compared to the expected 49.6. In contrast the NFIB Business Optimism Index for May posted 94.4 which surpassed market forecasts. Despite achieving a modest relief rally yesterday, experts still expect the AUDUSD to weaken in the days ahead. This is because the USD should gain increasing support in its role as a safe-haven asset if the stresses of the European debt crisis continue to mount. As such, consider opening a new PUT currency option using the AUDUSD as its underlying asset if its price should plunge beneath 0.9918.
The Swissie struggled against the USD for most of yesterday as the dollar attained a new weekly high. Investors dashed towards safe-havens, such as the US dollar, early on Tuesday amid fears caused by the yields of the Spanish 10-year bonds hitting historic highs. The USDCHF surged to almost 0.9650 recording a 4 day high in the process. However, the pair failed to maintain any momentum and subsequently pared its gains by falling back towards its daily opening price. This movement was partially caused by a US spokesperson informing the markets that the Fed was prepared to act if the US economy continues to struggle. However, investors must be aware that such statements carry significantly less punch than they did in preceding years. This is because any new Fed action will now have a significantly diluted impact on the US economy compared to previous ones. As the CHF is highly correlated with the Euro, analysts anticipate that it will weaken over the coming days against the USD because of the uncertainties surrounding European debt contagion. Consequently, look to buy the pair if its pair breaks higher than 0.9676.
Yesterday, the price of gold appreciated in value for the third consecutive day as investor used the precious metal to hedge their bets against the uncertainties of the looming Greek election scheduled for this coming Sunday. In recent weeks, gold was completely broken its previous correlation with riskier assets and now has definitely reverted to its traditional role as a safe-haven asset. Consequently, the commodity benefitted yesterday from the uncertainties concerning the Spanish bailout package which many analysts are now claiming to be too small to be effective. With Greek, Spanish and Italian causing investors to have constant nightmares, gold is currently experiencing a significant bullish sentiment which is very likely to persist throughout this week. Consequently, consider buying this commodity if its price can sustain a break above $1,615.42 per oz.
Despite concerns that the Eurozone chaos will reduce oil demand, the commodity managed a modest rise yesterday. However, with a persistently strong bearish bias bearing down on oil, consider selling it should its price slump beneath $81.11 per barrel.
NASDAQ was forced to intervene yesterday in order to protect the share price of Zynga after its stock crashed by 11.8% to under $5 a share for the first time in the firm’s history. Investors fell in droves amid worries that the fad for games, produced by the social gaming company for Facebook, had already passed its zenith. The creator of Facebook favorite games, such as Farmville and Hidden Chronicles, has recently begun to experience stiff competition from entertainment on mobile phones.
Following an announcement made this week by Apple expressing its plans to sell voice activated turn-by-turn navigation and real-time traffic updates in cars, the shares of Harman International Industries plunged by nearly10 %. This drop added to the 5% slump that Herman shares endured on Monday.
The shares of Apple and Google experienced mixed fortunes yesterday with the ones of the former rising by 0.87% to $576.16 while those of the latter slumping by 0.60% to $565.10, With a strong bearish sentiment still engulfing the stock markets, sell Apple if its share price drops below $574.85 and consider selling Google if its share price plunges beneath $564.34.