June 19 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Despite the Greek elections producing a pro-bailout victory, equities slumped yesterday amid markets fears that the constantly rising borrowing costs of Spain and Italy could provide more stimuli for debt contagion. Stock futures received a boost during Sunday night from the news that the center-right New Democracy party had won the Greek election and would set about the process of forming a new coalition government. However, shortly afterwards the German Chancellor, Angela Merkel, completely squelched this buoyancy when she stated that nothing new would be gained by renegotiating a new bailout package for Greece. The markets immediately turned sour after Merkel’s remarks because they severely dampened whatever prospects Greece had to win additional time to meet their financial obligations.
The yields of Spanish 10-year bonds again surged above their very important 7% mark yesterday. Such a move is very significant because other indebted Eurozone members, such as Greece and Ireland, were prompted to first apply for their bailout loans once the yields on their equivalent bonds rose above this critical value. Analysts are now summarizing these latest developments by stating that uncertainty has definitely increased because of the election of a new unproven Greek government and the intense worries over Spain’s troubled banking sector. They also added that the recent Spanish bailout of 100 billion euros did little to appease the markets because of the serious deficiencies and omissions contained within the details of the package. Consequently, they anticipate that the markets will fluctuate vigorously in a side-way action over the coming days until investors can gain a better clarification on how these complex issues will be resolved.
Shortly after the Forex re-opened on Sunday, the euro surged to a monthly high against the USD by hitting 1.2746. This movement was caused by new market optimism arising from the news that a pro-bailout party had won the Greek election. However, this buoyancy was not sustained for long as a result of Merkel’s dour statements and Spanish borrowing costs hitting unsustainable levels. In addition, investors took the opportunity yesterday to recommence selling the Euro at a better discounted price following Sunday’s rally. Pressure also increased on the single currency because analysts are now concerned about the ability of the Eurozone to initiate policies that are capable of preventing debt contagion spreading to larger economies, such as those of Spain and Italy. With a heavy bearish sentiment hanging over the EURUSD generated by the European debt crisis, consider opening a new PUT currency option using this pair as its underlying asset if price can break below 1.2560.
The British pound climbed against the USD to hit a high at 1.5740 during Sunday night before retracting and paring its gains on Monday. The euphoria, gained from the Greek election result, drove the initial rally until optimism gave way to new serious worries concerning European debt contagion. As a result, the Monday session saw the pair plunge by almost 80 pips from its high before hitting and then rebounding from its support level at 1.5635. This movement was caused by investors becoming extremely concerned by the ever-rising borrowing costs of Spain and Italy. In particular, Spanish 10-year bond yields exceed a critical level meaning that the nation is no longer capable of servicing its debt obligations. Until the markets can acquire clarification about how this dismal situation can be resolve, a strong bearish bias will influence the directional movements of the GBPUSD. As such, consider selling the pair if its price slumps beneath 1.5629.
Yesterday, the Australian dollar made an unsuccessful attempt to break above its 1.0120 level. They pair was initially buoyed by the fresh market jubilation arising from the optimistic Greek election result. However, the glum Merkel statements and the unstoppable rise of Spanish and Italian borrowing costs saw the pair plunged downwards to a daily low at 1.0055. After finding a good base of support at this level, the AUD then rallied strongly so that it produced a better trading performance against the USD on Monday compared to other major currencies. Although the AUD is prone to weakness from any negative developments arising from Europe, its recent impressive performance against the USD is primarily due to its economy is producing better data compared to that of the USA. In addition, its main trading partner, China, has also published improved economic indicators in recent weeks. Consequently, with a new sense of optimism prevailing over the AUD, look to buy the AUDUSD if its price can achieve a sustain break above 1.0139.
The weakness seen in the Euro against the USD yesterday was directly matched by that of the USDCHF as the EURCHF hardly budged during Monday. After initially plunging to a low of 0.9420 caused by the Greek election jubilations, the USDCHF rallied strongly by over 130 pips. However, the pair then banged its head against a strong resistance level at 0.9558 formed by the 200-hour before undergoing a moderate retraction. In the days ahead, the USD will most likely acquire further support in its role as a safe-haven asset from the significant uncertainties caused by the European debt crisis. Investors will be particularly keen this week to learn if the newly elected Greek government is capable of coping with its nation’s austerity demands. In addition, Spain has now passed the point whereby it can no longer service its debt obligations. With such worries in the air, the directional movements of the USDCHF are heavily influenced by an overwhelming bullish bias. Consequently, look to buy this pair if its price can surge above 0.9566.
The price of gold broke its six-day rising streak yesterday by dropping as a result of the fresh optimism arising the victory of a pro-bailout party in the Greek elections. Investors gained new hope that Greece will not exit the Eurozone following this result. However, the precious metal performed an impressive rally later in the session as the markets grew more pessimistic about fresh uncertainties surrounding the European debt crisis and its potential to disrupt the US economic recovery. Analysts summarized this current situation by stating the gold movements are currently more dependent on the outcomes of the Fed meeting, starting today, then to fluctuations in risk appetite. With gold improving its status as a safe-haven asset and presently finding a strong bid, look to buy this commodity if its price can surge above $1,628.83 per oz.
The price of oil crumbled yesterday due to pressures arising from rising Spanish and Italian borrowing costs. As the oil market is presently enduring a strong bearish sentiment, consider selling this commodity if its price drops below $82.27 per barrel.
Market speculation was rife yesterday that Microsoft Corp was in the process of completing the purchase of Yammer, a business software company, for a final price that could be in excess of $1 billion. This acquisition would provide Microsoft with the ability to improve the social networking functions that it supplies to corporations. Despite requests, both spokespersons from Microsoft and Yammer refused to comment on these rumors.
United Technologies Corp advised the markets yesterday that it was planning to sell power generation facilities, located at its Pratt and Whitney subsidiary, for a sum that could exceed $1 billion. Following this announcement, the shares of United Technologies surged by 0.7% to $75.00 during Monday’s trading session.
Despite all the uncertainties plaguing the markets yesterday, both Apple and Google enjoyed a very good day with the shares of the former soaring by 2.03% to $585.78 while those of the latter surged by 1.12% to $570.85. With both companies benefitting from a bullish bias, buy Apple if its share price break above $587.58 and consider purchasing Google if its share price climbs higher than $572.69.