June 20 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Equities surged yesterday on hopes that the meeting of the Federal Open Market Committee (FOMC), which concludes today, will deliver fresh stimulus measures in order to bolster the struggling US economic recovery. Investors activated bullish bets on Tuesday in anticipation that the Fed will attempt to counter the negative influences produced by the European debt crisis which are beginning to cap growth in the US economy. However, such a decision is more difficult to make this time round for the following two reasons. The first is that any additional quantitative easing will provide only a diluted boost to the US economy. In addition, the US government needs to produce a framework enabling any Fed decisions to achieve maximum effectiveness. In particular, it has to approve policies that are capable of resolving the fiscal cliff issues that are looming towards the end of this year. These menaces could cause the USA to regress into a new recession, if left unattended, as they threaten to both increase taxes for Americans and force sweeping cuts in government spending.
In a dramatic development yesterday, Spain paid a historically high price to sell its short-term debt resulting in the country progressing ever closer to becoming the biggest member of the Eurozone to be locked out of the credit markets. The unstoppable rise in Spanish borrowing costs empathically demonstrates how ineffective the recently introduced 100 billion Euro bailout package has been in both appeasing the markets and solving the nation’s troubled banking sectors. Analysts are now advising that Eurozone financial authorities will have to revisit this deal and make significant amendments to its details. Spain, the fourth largest economy in the Eurozone, was forced to pay 5.11% to sell 18-month paper and 5.07% to sell 12-month Treasury bills. Both figures were massive increases over those paid in similar events a month ago.
The Euro rallied strongly against the USD yesterday amid hopes that the Fed Reserve and other major global central banks will soon announce fresh monetary easing policies in order to counter the never-ending problems arising from the deteriorating European debt crisis. The EURUSD surged by over 100 pips breaking above its 1.2700 mark during a volatile session. Although Investors’ optimism rose because of the increasing prospects of new stimulus measures, they were concerned at the same time about a significant drop in German investor confidence, Greece’s ongoing austerity commitment and a substantially climb in Spain’s borrowing costs. As the markets are becoming increasingly confident about new Fed action which would have the effect of devaluing the USD, consider buying the EURUSD if its price soars above 1.2719.
The UK released economic data yesterday disclosing that inflation in Britain had surged in the last month. This unexpected result increases the chances that the Bank of England will introduce new stimulus measures in order to boost the fragile UK economy that is suffering from the European debt crisis. If such policies are instigated then they will, in effect, weaken the GBP by devaluing it. As such, although the British pound rose against the USD yesterday, it did not fare so well as other major currencies. The GBPUSD plunged initially by almost 60 pips earlier in the session to a daily low at 1.5613 before rallying by over 110 pips to close above 1.5720. With the prospects of additional British stimulus increasing and with fresh news about further deterioration in the European debt crisis, consider opening a new PUT currency option using the GBPUSD as its underlying asset if price falls below 1.5686.
Yesterday, the Australian dollar had another good session against the USD by achieving its seventh rise in consecutive days. The AUDUSD rallied by over 60 pips to its highest level since early May by hitting 1.0195. Speculation was rife yesterday that the Fed will need to introduce additional quantitative easing to help the US economy defend itself from the devastations of the European debt crisis. These rumors caused a general weakening in the US dollar. In addition, the Australian economy is presently releasing better data releases than those of the USA which is providing more support for the AUD. With investors believing that the Fed must act because of all the present global woes, analysts are anticipating that the AUDUSD will strengthen in the coming days. As such, look to buy the pair if price can achieve a sustain break above 1.0209.
The CHF bounced back against the USD yesterday as the USDCHF closely tracked the performance of the EURUSD. As a result, the pair plunged by over 70 pips breaking beneath its 0.9500 mark in the process. This movement was fueled by investor speculation on Tuesday that the Fed would take action by instigating new stimulus measures in order to both help bolster the struggling US economic recovery and protect it from the onslaught of European debt contagion. The USDCHF toyed with its key support level located at 0.9508 (its 55 hours MA) a number of times before achieving a sustain breakthrough. The pair then headed downwards towards its daily lows at 0.9440. With the markets in firm belief that Fed action is imminent, the USD would well weaken further in the days ahead. As such, consider opening a new PUT currency option using the USDCHF as its underlying asset if price can plunge below 0.9440.
The price of gold dropped in value yesterday recording its first daily decline in seven days as investors preferred to consolidate their holdings in anticipation of a looming and potentially market-moving announcement from the Fed today. If the Fed does obliged and delights the markets by instigating addition stimulus, then analysts are advising that such a movement would be supportive of further gold strength. This is because the precious metal will gain a bid from its attraction as a hedge against economic uncertainty arising especially from Europe. With gold enjoying a significant bullish bias presently, look to buy this commodity if its price can attain a clear break above $1,625.40 per oz.
The price of oil inched upwards yesterday amid hopes about both the Iranian nuclear deadlock and fresh US stimulus. However, with a strong bearish bias still hanging over the oil market, consider selling this commodity if its price plunges beneath $82.04 per barrel.
The president of J.C. Penney Co brusquely departed the company yesterday causing its shares to plummet by 11% during the trading session. This development occurred as a result of a very disappointing advertising campaign intended to turnaround the firm’s recent drops in revenue and profit streams. Penney’s shares tumbled to their lowest point since September 2010 by hitting $21.57 on Tuesday before rallying later in the session to close at about $21.89.
Oracle Corp countered disturbing rumors yesterday by releasing a stronger-than-expected quarterly profit three days ahead of schedule. The firm made this gesture in order to ward off concerns that its business was stagnating following the recent departure of a key executive.
Both Apple and Google benefitted by the stock market surge yesterday fuelled by Fed speculation with the shares of the former soaring by 0.28% to $587.41 while those of the latter surged by 1.87% to $581.53. With both companies experiencing a strong bullish sentiment, buy Apple if its share price climbs higher than $589.18 and consider purchasing Google if its share price rises above $583.10.