June 25 Weekly Market Review
Weekly market analysis by OptionFair
Financial Market Overview
The shares of major global banks appreciated in value last Friday despite the ratings agency, Moody, downgrading fifteen of the world’s premier banks late last Thursday. This action was taken to equate the risk status of these banks to the present political and economic uncertainties. This recovery in the banking sector last Friday helped the Stock markets etched out a modest rise following a dramatic collapse on Thursday when, for example, the S&P500 index crumbled by 2.2% registering its biggest drop this year. Data published last Friday disclosed that German business sentiment had declined in June for the second consecutive month hitting a two year low in the process. This result added to a spate of disappointing economic indicators published last week from Europe, China and the USA. Investors concluded that these figures were particularly worrisome because they provided concrete proof that the global economic recovery was definitely faltering.
The markets now have to contend with the solid fact that the world’s economy is slowing down at an increasing speed following the release of worse-than-expected economic data all revealing that the manufacturing outputs of the USA, Europe and China were in decline. Without question, the main catalyst behind these depressing developments is the European debt crisis. Consequently, the markets will be focused on the EU summit this week hoping that new policies will emerge that can resolve this calamity enabling global economic growth to recover. In particular, investors will be seeking clarification from the conference in order to help them to recommence trading stocks, commodities and other assets with more effectiveness. The importance of the EU meeting was succinctly summarized by the Italian prime minister when he recently stated that this is the week to save the Eurozone.
The Euro came under pressure from the USD late last week after the US Federal Reserve opted to just extend its Operation Twist as opposed to instigating more aggressive stimulus measures. The decision effectively removed the threat of devaluation away from the USD at least for the time being. Consequently, the EURUSD plummeted last Thursday by over 110 points. Investors adopted a ‘play-safe’ attitude on Friday ahead of important European meetings generating a modest Euro rally. The stakes could hardly be higher this week since the outcome of the EU conference will shape the directional movements of EURUSD over the short-term. If the discussions are inconclusive then the EURUSD could plunge below 1.2450 targeting 1.2000. In contrast, the delivery of quality solutions could propel the pair above 1.2750 on route for 1.3000. Now that the USD is no longer threatened by devaluation and because it strengthens in its role as a safe-haven asset from any global economic set-backs, the EURUSD is presently subjected to a strong bearish sentiment. Consequently, look to sell the pair if price slumps beneath 1.2489.
One of the most important events that occurred last week regarding this pair was the disclosure of the minutes from its recent policy meeting revealing that the Bank of England (BoE) was considering the instigation of additional quantitative easing in order to boost the floundering UK economy. This revelation resulted in the GBPUSD weakening over the last three trading days of last week because such an action would have the effect of devaluing the GBP. In contrast, the US Federal adopted the opposite stance by merely extending its present stimulus measures as opposed to introducing more aggressive ones. This means that the USD is immune from the threat of devaluation in the short-term. As a consequence of these developments, a strong bearish sentiment now prevails over the GBPUSD. As such, consider opening a new PUT currency option using this pair as its underlying asset is price can attain a clear break beneath 1.5544.
The AUD weakened considerable against the USD towards the end of last week following the release of a spate of disturbing economic indicators. In particular, disappointing data published from China disclosed that its manufacturing was in decline and that its Gross Domestic Product is on track to register a decline in Q2. The Australian economy and currency is normally adversely affected by the publication of any deterioration in the Chinese economy as its giant neighbor is its main exporter. The USD also gain support from the global set-backs that were reported last week which caused investors to flee to safe-haven assets, such as the greenback and Treasuries. Analysts are now expecting that the recent bull trend that the AUDUSD has enjoyed will terminate resulting in a significant downturn. This is because a strong bearish sentiment as settled over the pair now that the USD is no longer confronted by the possibility of devaluation. As such, look to sell the AUDUSD if its price plummets below 0.9989.
After a turbulent Thursday, the pair traded a narrow range for most of Friday as investors adopted a ‘play-safe’ stance ahead of an important meeting of European leaders scheduled for late Friday and the European Union summit this week. However, the USDCHF did plunge during the session hitting daily lows in response to the EURUSD spiking higher. The movement was caused by the announcement from the European Central Bank that it had devised new policies to ease banking collateral rules within the Eurozone. As the EURCHF did not budge following the publication of this news, the strengthening of the Euro was passed directly onto the Swissie which caused the USDCHF to plummet. As this week progresses, the pair is expected to recommence its bullish journey upwards as the USD will gain increasing support both from any fresh European chaos and any new global economic set-backs. Consequently, consider buying the pair if price breaks above 0.9613.
After a torrid sell-off last Thursday, the price of gold managed to rebound on Friday. However, despite this welcoming respite, the precious metal has now practically traded flat for the entire year after recording a 4% decline in value last week. This movement was primarily caused by the US Federal Reserve opting to just extend Operation Twist in preference to more aggressive stimulus measures. This decision had the effect of reducing the attraction of gold as a hedge against inflation. The developments of last week have created a strong bearish bias that is now hovering over the gold market. Consequently, look to activate a new PUT commodity option using gold as its underlying asset if its price slumps below $1,560.80 per oz.
The price of oil rebounded on Friday as a result of investors seeking bargain prices. However, with an intense bearish sentiment hovering over the oil markets, consider selling this commodity if its price plunges beneath $77.56 per barrel.
Darden Restaurants presented projected yearly profits on Friday that fell well short of those anticipated by market analysts causing its shares to plummet by over 1.8%. The company, which includes famous brands such as Red Lobster and Olive Garden, advised that it planned to intensify its value-priced campaigns in order to entice customers back to its restaurant chains. Darden predicted a 2013 earnings growth figure between 8% and 12% generating a share range between $3.87 and $4.01that was well below the market forecast of $4.05.
Ryder System also witnessed its shares plunging by nearly 12% last Friday after it revised its quarterly earnings forecasts downwards as a result of a reducing demand for its commercial business sector. This important segment generated 64% of the firm’s total revenue in 2011. Ryder specializes in the rental, contract maintenance and leasing of tractors, trailers and trucks. Ryder shares slumped to a daily low of $35.80 following this announcement before rallying to a close near $36.13 last Friday.
With investors playing safe last Friday ahead of important European meetings, the markets achieved modest gains causing the shares of Apple to climb by 0.77% to $582.10 and those of Google to appreciate by 1.11% to $571.48. After a spate of disappointing economic indicators released last week pointed to a global economic slow-down, the markets are now subjected to a prevailing bearish sentiment. Consequently, consider selling Apple shares if price plunges beneath $579.15 and sell Google if its share price slumps below $570.37.