June 22 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The release of disappointing economic indicators from Europe, USA and China on Thursday revealed that manufacturing output was declining in all these main trading zones. In response, the stock markets plunged and oil dropped beneath its psychologically important $80 per barrel mark. One of the prime reasons for this sell-off was the Fed opting to just extend its Operation Twist as opposed to instigating more aggressive stimulus measures. As investors had anticipated a bolder stance from the Fed, they had driven the markets higher in the days prior to the Fed announcement. Consequently, they proceeded to relinquish their bullish bets yesterday both because of their Fed disappointment and the release of weak economic indicators. Data published on Thursday demonstrated that Chinese manufacturing output had contracted in June and the business activity had decline for the fifth consecutive month in Europe. In addition, US factory production had fallen in June because of reduced demand from overseas customers.
Market anxiety increased on Thursday because of these depressing statistics as they provided proof that the global economy was, indeed, deteriorating as a direct consequence of slowing growth in China and the USA as well as the European debt crisis. Analysts summarized the situation by stating that the catalyst for all this negativity was, without question, European debt contagion. This crisis has now attained such a level of turmoil that its insidious effects had infiltrated all sectors of global business activity. Preliminary manufacturing and service sector figures for the 17-nation Eurozone issued yesterday disclosed a further decline in business confidence resulting from increasing unemployment and falling new orders. Of particular concern was that this information revealed the German sector had deteriorated for the second consecutive month while its manufacturing output had slumped to a three year low.
The USD strengthened considerably against the Euro yesterday with the EURUSD plunging by well over 100 pips during the session. The primary reason for this movement was the Fed’s decision to opt for a conservative stimulus option as opposed to a more aggressive one. As additional quantitative easing has now been removed from the table for the time being, the USD is no longer facing a threat of devaluation. Consequently, the greenback appreciated in value on Thursday against a basketful of currencies. In addition, any deterioration in the global economy, as witnessed by a spate of poor releases yesterday, will also benefit the USD in its mode as a safe-haven asset. With the prospects of additional stimulus measures severely reduced and with global economic conditions deteriorating, the EURUSD will be subjected to a dominating bearish sentiment in the coming weeks. As such, look to sell the pair if its pair plummets below 1.2518.
The GBP weakened against the USD dollar yesterday with the pair plummeting by nearly 90 pips. The USD gain support as a safe-haven asset after poor economic indicators were released from Europe, China and the USA. In addition, the US dollar acquire a further bid from the Fed decision yesterday to just extend its operation Twist as opposed to introducing more aggressive stimulus. With data displaying continuous signs of a global economic slowdown, the stock markets are presently dominated by risk aversion which caused the USD to appreciate in value against most of the major currencies on Thursday, including the British pound. Under such conditions, the GBPUSD is currently subjected to a renewed strong bearish sentiment. Consequently, consider selling the pair if price can attain a clean break beneath 1.5576.
The strong bullish trend that the AUDUSD had been enjoying in recent days was terminated yesterday with the pair dropping by over 120 pips during the session. The Australian dollar was one of the worst performers against the US dollar on Thursday as it plummeted towards its weekly lows at 1.0050. The AUD came under intense pressure as a consequence of poor economic indicators helping to bolster the USD in its role as a safe-haven asset. In addition, investors are now aware that the US dollar will not be devalued by the introduction of new aggressive stimulus in the near future. The deteriorating state of both the global economy and the European debt crisis will now subject the AUDUSD to a strong bearish bias over the coming weeks. As such, look to sell the pair if its pair slumps beneath 1.0030.
The USD powered its way against the CHF yesterday with the USDCHF climbing by almost 100 pips during the session. The pair tracked its inversely correlated partner, EURUSD, on Thursday as a direct consequence of worse-than-expected economic data releases from China, USA and Europe. After the Fed decision on Wednesday, a new powerful sense of risk aversion settled over the markets which benefited the USD in its role as a safe-haven asset. Expert consensus now anticipates that the USDCHF will recommence its journey upwards as a strong bullish bias prevails over the pair. Consequently, consider activating a new CALL currency option with this pair as its underlying asset if price can surge above 0.9585.
The price of gold collapsed yesterday by over 3% recording its largest one-day decline in over three months. The main drivers behind this movement were the disappointing Fed decision made on Wednesday and the release of dismal economic data on Thursday from China, Europe and the USA. The US Fed severely suppressed the precious metal’s appeal as a hedge against inflation by selecting a conservative stimulus option as opposed to a more aggressive one. As a consequence of these grave developments, the gold is now under serious pressure from a strong bearish sentiment. Consequently, look to open a PUT commodity option using gold as its underlying asset if its price plunges below $1,564.95 per oz.
The price of oil slumped yesterday to its lowest level in 18 months as a result of high supply and poor global economic data releases. With a strong bearish sentiment suffocating the oil market, consider selling this commodity if its price drops beneath $74.95 per barrel.
In an attempt to quench a shareholder rebellion over a leadership crisis, Chesapeake Energy Corp announced yesterday the appointment of former Conoco head, Archie Dunham, as its new chairman in replacement of Aubrey McClendon. The company is facing a number of serious challenges at present including weak cash flows, the lowest natural prices in nearly ten years and a significant $10 billion budget hole. The firm’s shares did not show any significant reaction to the release of this news.
Red Hat posted quarterly growth figures on Thursday that were well below the values expected by market analysts. The company, which is the largest wholesaler of the Linux operation system in the world, saw its shares collapse by 9% after this announcement. Spokesperson cited weak global economy impacting its growth as the main culprit behind this disappointing result.