June 18 Weekly Market Analysis
Financial Market Overview
Investors’ optimism surged last Friday following the announcement that global central banks would respond to any market turmoil produced by the Greek election using a coordinated plan. As a consequence, equities soared during the session by even ignoring a new bout of disappointing US economic releases. Data posted on Friday disclosed that, although New York manufacturing was still growing, its output had slumped during June plunging well below market expectations. Experts concluded that this depressing result demonstrated that customers and investors were now struggling badly to control all the worries generated by the current global political and economic volatilities. G20 spokespersons informed the markets late last week that the world’s central banks were ready to act should the Greek election generate a result capable of destabilizing the markets and causing a significant run on banks.
With momentous signs of a slowdown in the US economic recovery and the European debt crisis coming to a boil, one of the most significant events this week will be the two day Federal Open Market Committee (FOMC) scheduled to start on Tuesday. Investors will be especially keen to learn if the Fed will instigate any new quantitative easing as the potential of such an action have increased dramatically since the last FOMC meeting. Without doubt, the markets will consume time this week digesting the implications of the Greek elections. However, there are other notable events scheduled in the coming days that will supply clues into the well-being of the Eurozone as a whole. Key economic indicators are due to be published including the Eurozone consumer confidence and flash PMIs for June. In addition, Germany will post its influential ZEW (Tuesday) and IFO (Friday) surveys which are anticipated to disappoint to the downside demonstrating that the Germany economy is no longer invulnerable from the huge shadow casted by European debt contagion.
The pair initially plunged after the markets rejected the new Spanish bailout package as a serious proposal. The EURUSD then stabilized with the weekend approaching as investors positioned their portfolios ahead of the unpredictable Greek election. A very worrisome sign that developed last week was Spanish yields piercing above their vital 7% level hitting historical highs. This value is psychologically important because other Eurozone members first submitted their bailout requests when the yields of their equivalent bonds broke above it. The Greek election result is pivotal and will have a great influence over the directional movements of the EURUSD over the coming days. Even if a pro-austerity party wins, the financial situation in Greece is appalling with its treasury on the brink of collapse. With the Eurozone facing such severe and complex problems, sell the EURUSD if price falls beneath 1.2605.
The British pound did well last week with the GBPUSD climbing by almost 160 pips to close above 1.5700 on Friday. The GBP received a boost from the release last week of another spate of disappointing US indicators which weighed on the US dollar. The UK has a busy few days ahead with the releases of 12 economic indicators in the pipeline which include CPI (Tuesday), BOE Quarterly Bulletin (Tuesday), MPC Meeting Minutes (Wednesday) and Retail Sales (Thursday). The GBPUSD has acquired a bullish bid during June as the US economic recovery has been producing continuous signs that it is slowing down. This concept was emphatically demonstrated last Friday the pair surging almost 70 pips during the session. As such, consider opening a new CALL currency pair using the GBPUSD as its underlying asset if price breaks above 1.5750.
The AUD inched higher against the USD last week with the AUDUSD even succeeding to achieve a sustain break above its psychologically important parity level. After a dismal time in May, the Australian dollar has generated a serious rally against the USD which has arisen primarily from the strong releases of its own economic indicators compared to the poor ones posted by the USA. Australia is scheduled to publish six important economic indicators this week including Policy Meeting Minutes (Tuesday), CB Leading Index (Wednesday), MI Leading Index (Wednesday), Housing Starts (Wednesday) and RBA Bulletin (Thursday). The directional movements of the AUDUSD are presently difficult to predict. This is because on one hand, the AUD is benefitting from its own improving economy as well as that of its main trading partner China. However, the European debt crisis remains in a precarious state which could support the USD in its mode as a safe-haven asset especially following the elections in Greece. As Eurozone developments could well be the prime driver, look to sell the AUDUSD if its price slumps below 0.9991.
The CHF rallied against the USD over the last three days of last week mirroring the movements of the Euro. The next few days could be turbulent for the USDCHF because of the Spanish and Italian debt issues as well as the spillovers from the Greek election. Switzerland is scheduled to release just four economic indicators this week including ZEW Economic Expectations (Wednesday), Trade Balance (Thursday), Industrial Production (Thursday) and SNB Quarterly Bulletin (Friday). Forecasting the directional movements for the USDCHF is no mean feat at present with the European debt crisis deteriorating and the US posting disappointing economic data. The implications resulting from a possible Greek exit from the Eurozone also hovers over the markets. As a result of these uncertainties, the USDCHF could encounter high levels of volatility in the next few days and is pressured, as such, by a slightly dominating bullish sentiment. As such, consider buying the pair if price can achieve a clean break above 0.9524.
Gold appreciated in value on Friday to achieve six days of consecutive gains as investors elected to use its safe-haven status to hedge their portfolios against the unpredictabilities of the looming Greek election. The precious metal also received a boost from the announcement that the central banks were prepared to introduce a fresh stimulus injection in the event that the Greek election instigates market turmoil. Gold gained a further bid arising from the increasing possibilities that the FED could consider new quantitative easing in order to help bolster the struggling US economic recovery. Consequently, with the gold market enjoying an active bullish bias, consider buying this commodity if its price surges above $1,629.46 per oz.
The price of oil inched slightly higher on Friday on hopes that Greece will not exit the Eurozone. However, with a strong bearish bias prevailing over the oil markets, consider selling this commodity if its price drops below $83.42 per barrel.
Facebook and its initial public offering underwriters presented court papers last Friday before the U.S. Judicial Panel of Multi-District Litigation. The firm and leading backers Goldman Sachs Group, JPMorgan Chase and Morgan Stanley are making a request that all lawsuits related to its recent $16 billion IPO should be fully supervised by the Manhattan federal court. To date, more than12 independent shareholder lawsuits have been filed accusing Facebook and its banking sponsors of deliberately withholding seriously weakened growth projections prior to the IPO.
Late last week, Nokia informed the markets that it intends to release 10,000 more of its already diminished workforce. The company also stated that it was implementing this unpreventable policy as an action to curtail financial losses produced from losing a serious portion of its cellphone market share to competitors, such as Apple and Samsung. After the release of this statement, Nokia’s shares slumped by 16% to 1.87 euros falling in the process below the psychologically significant 2 euros level for the first time since 1996.
Both Apple and Google caught the tail of the bullish headwind that occurred late last Friday with the shares of the former rising by 0.45% to $574.13 while those of the latter climbed by 0.98% to $564.51. With the prospect that forthcoming coordinated action from the central banks could provide a bid for the Stock Markets, consider buying Apple shares if their price soars above $577.45 while look to open a new CALL stock option using Google shares if their price breaks above $569.86.