June 15 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Optimism increased yesterday that the Greek elections scheduled for this coming weekend will deliver a conclusive victory for the conservative New Democracy party, which is a solid advocate of the current bailout plan. In addition, latest polls indicate that over 80% of Greeks are in favor of remaining in the Eurozone. As a result, equities rallied on Thursday as investors’ worries about a disorderly Greek exit from the currency bloc diminished. However, the stock markets did fluctuate rapidly during yesterday’s session under volatile conditions and this pattern of trading is expected to persist ahead of Sunday’s elections. The release of weak US economic indicators and rising Spanish and Italian bond yields acted to dampen investors’ enthusiasm on Thursday by partially offsetting their Greek buoyancy.
Data posted on Thursday provided evidence that the US economic conditions were still deteriorating by advising that the number of Americans applying for new claims for unemployment benefits had surprisingly surged last week. Another disappointing release revealed that US consumer prices collapsed by 0.3% during May recording their biggest decline in almost 3 years. The markets were also stressed yesterday when the yields of Spanish 10-year bonds burst above 7% for the first time ever. This is because above this level Spain is no longer in a position to service its debt repayments because its borrowing costs are too high. In addition, other Eurozone members first applied for their bailout requests after their equivalent yields rose above this important value. Adding more fuel to the fire, Moody’s Investor Service sliced Spain’s rating by three notches after concluding that the new Spanish bailout plan would only add to the nation’s debt mountain.
For the third consecutive day, the Euro crept higher against the USD as investors continued to relinquish bearish bets against the pair before the Greek election scheduled for this coming weekend. The logic behind this move does appear questionable because of fresh disruptions occurring within the Eurozone. For example, Spanish yields piecing through 7%, Spanish credit downgraded by Moody’s and Italian yields reaching historic levels does not bode well for the Euro. Even if a favorable result was achieved in the Greek election, the Eurozone is facing some frightening headwinds in the coming months. Even the bailout plan for Spanish banks that was hastily assembled last week has completely failed to pacify the markets. Another dark shadow raising its head occurred yesterday when Italian three-year borrowing costs surged above 5.3% increasing the prospects that this country will be seeking bailout funds in the near future. With so much negativity in abundance, the EURUSD is heavily influence by an intense bearish sentiment. As such, look to sell the pair if its price drops beneath 1.2554.
The British pound would not sustain its advantage against the USD on Thursday despite the greenback suffering broad-based weakness. The release of disappointing US economic indicators caused the GBPUSD to climb to a daily high of 1.5556. However, a bearish retraction occurred later in the day as the markets became awash with speculation and rumors that the Bank of England was actively considering additional quantitative easing. Although the BOE has maintained a solid stance against instigating fresh stimulus measures, it has had to review its position lately since the UK regressed into a new recession. With Europe moving into a very vulnerable phase, the GBP will weaken further against the USD if additional deterioration sets in. As such, consider selling the pair if its price slumps below 1.5540.
Yesterday, the Australian dollar attempted, this time successfully, for the fifth consecutive day to break above its psychological parity level against the USD. In doing, the AUDUSD did manage to poke above the upper trendline of its bearish trading channel. The rally was fuelled later in the day by speculation the Federal Reserve may instigation further stimulus measures in order to bolster the faltering US economic recovery. More disappointing releases of US economic indicators prompted this development especially the expected surge during last week in the number of Americans applying for unemployment benefits. If the Fed did activate such actions then they would have the effect of devaluing the USD and strengthening the AUD as a consequence. However, whereas Fed activating such measures if still very speculative, the grave problems with the European debt crisis are reality. Consequently, as this analysis suggests that that the AUDUSD is still subjected to a strong bearish bias, consider activating a new PUT currency option with the pair as the underlying asset if price should break below 0.9963.
The Swissie received a boost later in the yesterday’s session after risk appetite surged following news that major central banks are planning a joint effort to inject capital into the markets should the result of the looming Greek election necessitate such an action. A scenario demanding this type of result could definitely arise should a political party succeed, which is predominately against the present austerity measures imposed as integral part of the present Greek bailout package. The USDCHF plunged by almost 50 pips to close near 0.9500. The new speculation about fresh Fed and the coordinated central bank action actions should definitely help support the CHF. However, even these measures still pale in comparison to the dynamic problems emulating from the European debt crisis. As such, the directional movements of the pair are still predominately driven by a strong bullish sentiment. As a result, look to buy the USDCHF if price can achieve a sustain break above 0.9564.
The price of Gold rose for the fifth consecutive day during a very volatile session on Thursday. The precious metal gained a further bid resulting from investors seeking safer-haven options to safeguard their portfolios from the release of more weak US economic indicators and the looming Greek elections. The markets provided gold with further support as fears mounted at the sight of the yields of both Spanish and Italian bonds hitting dangerously high levels. In addition, these two countries, which possess the third and fourth largest economies in the Eurozone, announced that new policies will be shortly forthcoming to address their surging borrowing costs and public finances. As analysts anticipate that gold will benefit from all these European pressures, consider buying this commodity if its price breaks above $1,624.82 per oz.
The price of oil appreciated in value yesterday after OPEC advised it was keeping its collective output unchanged for the rest of 2012. With this commodity still subjected to a strong bearish bias, consider selling oil if its price slumps beneath $82.15 per barrel.
On Thursday, Nokia announced dramatic plans to shed almost 10,000 more of its already depleted workforce. The firm also advised that it was taking these necessary actions in order to stem serious financial losses resulting from losing a significant portion of its dwindling cellphone market share to rivals, such as Apple and Samsung. Following this statement, Nokia’s shares collapsed by 16% to 1.87 euros dropping in the process beneath the psychologically significant 2 euros level for the first time since 1996.
AOL shareholders prevented a potential board of directors reshuffle by Starboard Value yesterday intended to streamline the firm towards a more ad-driven media operation. AOL shares fell by 6%, their largest slump in two months, to hit $25.49.
Both the shares of Apple and Google failed to benefit from the strong bullish headwind of late yesterday afternoon with the shares of the former plunging by 0.11% to $571.53 while those of the latter slumped by 0.36% to $559.05, With a strong bearish sentiment suffocating the stock markets, sell Apple if its share price drops below $569.59 and consider selling Google if its share price falls beneath $557.48.