June 21 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
On Wednesday, the markets became increasingly more confident that the world’s central banks will need to intervene shortly in order to instigate new stimulus measures to combat the ravages caused by European debt contagion. For example, minutes released from its last policy meeting demonstrated that the Bank of England is on the brink of introducing new quantitative easing in order to bolster the fragile UK economy. This revelation caused the three-month Sterling Libor to plunge to its lowest value since September 2011. In a similar fashion, statements from European Central Bank spokespersons encouraged the markets to reassess their forecasts concerning further ECB rate cuts. This development caused the three-month Euribor rates to plummet to near historic lows. However, German government bond yields did rebound from record lows yesterday following statements made by the European governing authorities informing that they were planning to produce a new policy next week with the primary objective of integrating all the banking sectors within the currency bloc.
News out of Greece on Wednesday reported that a new coalition government had been created whose first step will be to attempt to encourage the other members of the Eurozone to provide it with more time in order to implement very unpopular austerity measures. A suggestion was made yesterday advising that the Eurozone’s new rescue fund should be utilized to reduce the borrowing costs of debt-laden member states. This development helped to alleviate the selling pressure on a number of European bonds. Many countries have advised the Eurozone authorities recently to instigate policies supporting deposit insurance and common banking supervision because such moves would help prevent indebted nations constantly requesting bailout aid to assist their troubled banking sectors. The Federal Reserve provided minimum support to the flagging US economic recovery on Wednesday by just extending its Operation Twist as opposed to more aggressive action. The markets initiated a moderate rally in response.
The EURUSD response to the Fed’s policy announcement was quite volatile. Shortly after the Fed stated that it was keeping its interest rates unchanged and that it was extending its Operation Twist, the pair plunged by over sixty pips in under a minute. However, after reassessing the details of the Fed statement, investors then forced a rally causing the EURUSD to hit a daily high at 1.2744. Another sharp reversal then ensured causing to pair to retract back towards 1.2650. Clearly the markets were disappointment by the Fed’s decision after having produced four daily bullish moves in a row in anticipation of a major stimulus action. Now that the treat has been removed, at least for the time being, that the USD will be devalued, a bearish sentiment should now resettle over the EURUSD. Consequently, look to sell the pair if price drops below 1.2656.
The disclosure yesterday from their last policy meeting indicating that the Bank of England (BoE) was actively considering further quantitative easing offset any advantage that the British pound would have gained by the extension of Operation Twist by the Fed. As a result of these conflicting developments, investor action was indecisive during Wednesday causing the creation a Doji candlestick. The pressure on the USD of devaluation has now been reduced for the time being. In comparison, The GBP is now under a substantial threat because of the looming additional stimulus measures the BoE is planning to implement. In addition, the USD is more likely to gain support from any further deterioration in the European debt crisis in its role as a safe haven asset. These developments imply that a strong bearish sentiment should now re-establish its control over the GBPUSD. As such, look to sell the pair if its price plummets below 1.5696.
The markets were just about appeased by the Fed decision to extend its Operation Twist as a way to help stimulate the faltering US economic recovery. However, many investors were disappointed because they had betted in recent days that more extensive quantitative easing would be forthcoming. As a consequence of these conflicting developments, the directional movements of the AUDUSD were indecisive yesterday which helped to create a Doji daily candlestick. The AUDUSD has enjoyed a sequence of consecutive rallying day of late which was primarily due to an improvement in the Australian economy in recent weeks. With a healthy bullish bias prevailing, look to buy the AUDUSD if its price can attain a clear break above 1.0214.
Switzerland released a disappointing economic indicator yesterday when data disclosed that its ZEW survey posted a value of -43.4 for June compared to -4.0 for May. This index is produced from a survey conducted by institutional investors and analysts. However, the USD failed to take any advantage from this dismal result earlier in the session because investors had their eyes firmly on the pending Fed decision later in the day. In fact, the pair tumbled to a daily low of 0.9423. The USDCHF then rallied strongly following the ‘let’s play it safe’ decision by the Fed by climbing back towards its daily opening. With the threat of devaluation now removed from the USD, at least for the time being, a significant bullish bias should now regain its hold on the pair. Consequently, consider buying the pair if its pair can attain a clear break above 0.9486.
The price of gold initially plummeted before it pared its losses yesterday after the Federal Reserve selected a very conservative option for its stimulus policy instead of implementing an aggressive one as expected by the markets. Many investors had activated bullish gold bets in recent days anticipating strong Fed action as well as using the precious metal as an hedge against economic concerns. Hence, gold endured quite a sell-off on Wednesday after the Fed failed to oblige although it did rally later in the session. As any further quantitative easing has now been removed from the table, at least for the short-term, most analysts regard such a development as a negative influence on gold and now expect it to encounter a strong bearish bias. As such, consider selling this commodity if its price can plunge beneath $1,607.04 per oz.
The price of oil crashed yesterday to its lowest level in 1.5 years following a report revealing excessive stockpiles. With a significant bearish sentiment in control of the oil market, consider selling this commodity if its price plummets below $81.07 per barrel.
Microsoft Corp launched the latest version of its smartphone software Windows Phone 8 in an attempt to increase its competitiveness against rival products, such as Goggle’s Android and Apple’s iPhone. Spokesperson from Microsoft advised that as its product contains similar functionality to its imminent Windows 8 PC software, its phone clients would enjoy more applications and features. Market analysis confirms that Microsoft presently possesses just a paltry 2% of the global smartphone market compared to Google’s 56% and Apple’s 23%.
Adobe Systems, the Photoshop software producer, sliced its full-year revenue outlooks yesterday claiming that the firm’s recently move towards a new subscription model had resulted in a slowdown in its growth. Following this announcement, Adobe shares slumped by 7% to a five-month low of $30.38 before rallying later in the session to $31.73.
During a volatile session dominated by indecisive following an lackluster Fed announcement, both Apple and Google struggled yesterday with the shares of the former falling by 0.28% to $585.74 while those of the latter dropped by 0.69% to $577.51. Now that aggressive stimulus action has been removed for the time being, a bearish sentiment should settle over the markets. Look to sell Apple if its share price plunges under $584.81and Google if its share price slumps below $577.02.