June 14 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Despite a background of intense global anxiety, equities moved little during most of yesterday until a significant plunge occurred late in the session amid Greek election fear. Earlier on Wednesday, US economic releases showed that retails sales, excluding autos, slumped during May by 0.2% hitting their lowest level in two years while producer prices plunged by 1% missing the expected 0.6%. These results provided further evidence that the US economic was, indeed, slowing down. In addition, investors were also too nervous on Wednesday to support directional price moves of any substance with the looming uncertainties of the Greek election constantly hovering over the markets. The unpredictable outcome of this event means that there exists a serious possibility. that if an anti-bailout party is elected, a Greek exit from the Eurozone could then well be on the cards presenting serious challenges for the currency bloc.
A very disturbing development emerging this week has been caused by investors forcing the yields of the Spanish 10-year bonds to their highest value since the birth of the Euro in 1999 demonstrating the failure of the new Spanish bailout plan to calm the markets. Analysts summarized the current situation by stating that the many unknowns surrounding the Greek political arena is preventing investors from either rallying the markets or selling them off. At present, even experts are struggling to determine how equities and commodities with react to any forthcoming headline news. Another distressing event occurred on Wednesday when a Chinese key spokesperson advised that China’s annual economic growth could plummet beneath 7% in the second quarter if poor industrial output continues during this month. Investors were unnerved by this announcement as they were hoping that China would provide enough economic growth to offset the problems in Europe.
The Euro succeeded in rallying quite strongly against the USD on Wednesday by climbing over 80 pips to close near the 1.2580 mark. Investors selected to pare quite significant bearish EURUSD positions on Wednesday which many analysts consider should be just a temporary move. This is because the pair is overshadowed by major concerns about Greek political uncertainties as well as the rising Italian and Spanish borrowing costs. As such, a trend developed yesterday involving traders strangely releasing bets on a plunging EURUSD as risk appetite improved despite serious signs that debt contagion could now be engulfing Italy. As all these uncertainties are dominating the directional movements of the EURUSD, a strong bearish sentiment is still in play despite the yesterday’s rally. As such, look to sell the EURUSD if its price breaks beneath 1.2486.
The British pound did not fare so well yesterday against the USD compared to other major currencies. Earlier in the session, the GBPUSD did mount another challenge on the important resistance area at 1.5600, but failed to sustain enough momentum to breakthrough. As a result the pair retracted back into a range with a floor based at 1.5530. The GBPUSD gained initial support as the USD weakened across the board because investors recovered their risk appetite to a moderate degree yesterday. However, the GBP lost traction as the day progressed because of the fresh problems brewing in Europe forcing the GBPUSD to a bearish close by dropping about 30 pips to 1.5520. With uncertainties from Greece, Spain and now Italian gripping the markets in a suffocating bearish sentiment, consider opening a new PUT currency pair with the GBPUSD as its underlying asset if price can drop below 1.5473.
The Australian dollar was another currency that struggled against the USD yesterday. The AUDUSD failed in an attempt to pierce above the important resistance level at 1.0000, banging its head against the upper trendline of its current bearish channel in the process. The pair then subsequently retreated back towards its opening price. The AUD encountered pressure after a prominent Chinese spokesperson advised the markets that China’s annual economic growth during the second quarter could drop below 7%. As China is Australian largest exporter, any adverse economic developments from China can have a significant negative impact on both the Aussie economy and its currency. With the European debt crisis still producing more complexities and uncertainties, the USD is more likely to benefit from such negativity than the AUD in its role as a safe-haven asset. As such, look to sell the pair if price can attain a sustain break beneath 0.9892.
The Swissie enjoyed a good day against the USD on Wednesday by again closely tracking the correlated performance of the Euro. The USDCHF fell by over 60 pips to close near 0.9550. The USD weakened after the release of a number of disappointing economic indicators including the Retail Sales which dropped by 0.2% during May hitting its lowest level in 2 years. This data supplied further proof that the US economy was showing signs of a significant slowdown which helped the CHF rally against the USD. Despite achieving a good performance yesterday, the directional movement of the USDCHF is still controlled by a strong bullish bias. This is because the deteriorating European debt crisis will provide more support for the USD in its mode as a safe-haven asset than it will for the CHF. As such, consider activating a new CALL currency option with the USDCHF as its underlining asset if price can surge above 0.9615.
The price of gold inched upwards again yesterday fuelled by safe-haven asset buying ahead of the looming uncertainties of the Greek election scheduled for this coming Sunday. The commodity hit a daily high at 1,622.83 following the release of a number of disappointing US economic indicators. Investor worries about Spanish and Italian debt as well as Greek political unrest also helped gold maintain a good bid throughout yesterday. Analysts are now expecting the precious metal to appreciate further in value as investors are most likely to seek safer-haven assets ahead of the volatile event of this coming weekend. As such, buy gold if its price is capable of climbing above $1.621.05 per oz.
Although the price of oil rallied earlier yesterday following a report advising that crude inventories dropped less than anticipated last week, they slumped later in the session. With a strong bearish sentiment prevailing, consider selling oil if its price drops below $81.07 per barrel.
Dell informed the markets yesterday that it intended to make cuts in excess of $2 billion in expenditure in the next three years as part of a plan to concentrate on the technological requirements of corporations. The firm’s sales and supply sectors are expected to take the blunt of these financial reductions. Dell, which is the second biggest PC manufacturer in the US, saw its shares subsequently surged by 4% yesterday following this announcement. However, its shares have still lost 15% of their value during 2012 amid worries that mobile products are infiltrating the PC market.
Jamie Dimon, who is the chief executive of JPMorgan, informed the US Senate Banking Committee that he could not explain fully how a minor hedging strategy based in London transformed into a loss of billions of dollars. Despite this revelation, Dimon still took the opportunity to criticize pending regulatory reforms which he considered did not make sense.
Both the shares of Apple and Google were hit badly by the late plunge in the stock markets yesterday with the those of the former slumping by 0.69% to $572.16 while those of the latter crashing by 0.71% to $561.09, With a strong bearish bias dominating equities, sell Apple if its share price plummets beneath $570.70 and consider selling Google if its share price slips below $559.81.