June 27 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Another surge in Spanish borrowing costs coupled with a release of disappointing US consumer data caused the markets to trend water on Tuesday as investors maintained their cautious approach ahead of the this week’s crucial European Summit. Spain saw its cost of borrowing rocket yesterday during an auction at which it’s Treasury was forced to pay the highest rates this year to sell slightly over 3 billion euro of short-term debt. A further worrisome development occurred after the rating agency Moody’s downgraded 28 Spanish banks by one to four notches earlier during the session. The US consumer confidence figure registered in June disappointed the markets by plummeting to its lowest level in five months. However, other data posted was more positive by disclosing that US home prices managed to increase for the third consecutive month providing evidence that, at least, this sector of the economy may be in recovery.
Analysts are now predicting that trading conditions will be volatile ahead of the looming two-day European Union summit. However, investors are expressing little confidence that this important event will produce any positive policies capable of, at least, pacifying the 30 month long European debt crisis. Financial ministers from Germany, France, Italy and Spain, the four largest economies in the Eurozone, held a last-minute discussion last night in an attempt to identify proposals for controlling debt contagion in the short-term. They also sought ideas to help integrate all the fiscal and banking sectors of the Eurozone in preparation for the EU Summit. European leaders are expected to define procedures to create a debt redemption fund, encourage tighter financial integration and form a controlling banking union at the EU summit as disclosed by a document detailing the agenda for this event.
The euro endured a modest drop against USD yesterday amid concerns about the surge in Spanish borrowing cost, the looming EU summit and a disappointing US consumer confidence release. Euro losses were contained, however, because investors were ‘playing-safe’ ahead of the all-pervading EU Summit. The pair did, in fact, plunge to a daily low of 1.2440 hitting its lowest levels in 2 weeks before paring its losses later in the session. Analysts summarized the situation by stating that although they expect that the euro will continue to weaken against the USD, they do not anticipate any large movements prior to the EU Summit. The EURUSD is currently experiencing a strong bearish bias because the USD is constantly strengthening from global political and economic concerns. As such, sell the pair if price falls below 1.2465.
The British pound produced a good performance against the USD on Tuesday by surging almost 60 pips. The GBP received a boost from comments expressed yesterday by the German Chancellor, Angela Merkel when she advised that she was evaluating the benefits of permitting the European Stability Mechanism (ESM) to lend directly to bank bailout funds. In particular, changes to ESM law were being considered in order to transfer financial aid directly to struggling national banks in the Eurozone. If such a measure is approved, then the troubled Spanish banking sector would be the first to benefit. The GBP gained support from this encouraging news which helped it to rally strongly against the USD late during yesterday’s session. Nevertheless, the pair is still subjected to a strong bearish bias at present as the USD is constantly gaining strength from its safe-haven status. Consequently, look to sell the GBPUSD if price plummets beneath 1.5569.
The Australian dollar enjoyed a good session against the USD yesterday as it climbed by nearly 50 pips. In fact, the AUDUSD managed to achieve a sustain break above its pivotal resistance level located 1.0048. Earlier in the day, the pair was under pressure as the USD threatened to dominate the AUD because of selling pressure emulating from the sharp increase in Spanish borrowing costs and the release of a disappointing US economic indicator. However, riskier currencies, such as the GBP and AUD, received a boost from Merkel comments when she advised that law amendments were in the pipeline that could allow the ESM to transfer financial aid directly to Eurozone debt-ridden banks bypassing their governments in the process. However, despite the encouraging AUD performance yesterday, the directional movements of the AUDUSD are controlled primarily by a strong bearish bias. As such, look to sell the pair if price can attain a clean break below 1.0012.
The Swissie mimicked the movements of the Euro against the USD yesterday. Initially, the USDCHF surged to daily highs of 0.9650 following the news that European authorities were mulling over a far-reaching strategy designed to integrate the 17 member currency bloc into a fully-fledged political federation within 10 years. The primary rationale behind this development is to demonstrate to the financial markets that the Eurozone has the will, means and motivation to preserve the well-being of the EURO over the medium term. However, the pair then pared most of its gains later in the session following the remarks made by Merkel. The anemic movement of the USDCHF yesterday can also be attributed to investors adopting a ‘play-safe’ stance ahead of the EU Summit. However, the pair is still dominated by a strong bullish sentiment because the USD is constantly strengthening from the persistent problems arising from the European debt crisis and global economic slowdown. Consequently, look to buy the pair if price breaks above 0.9630.
The price of gold fell plummeted yesterday as the persistent European debt crisis and the release of poor US economic indicators caused market fears of deflation to increase. The precious metal was also hit by the news that Spanish borrowing costs had almost tripled during an auction held on Tuesday. Gold endured further selling pressure after the German Chancellor, Angela Merkel, commented that she did not foresee Europe achieving a total debt liability during her lifespan. Gold dropped following this remark because if requests for more accommodative policies fail to materialize from the forthcoming EU Summit, then analysts anticipate that gold could face extensive downward pressure. As a result of these gold-averse developments, this commodity is now subjected to a prevailing bearish sentiment. As such, look to sell gold if its price drops beneath $1,570.97 per oz.
The price of oil inched higher during a volatile session yesterday by climbing 0.19% to close at $79.36 per barrel. As the oil market is still dominated by a strong bearish sentiment, consider selling this commodity if its price slips under $78.03 per barrel.
News Corp, owned by Rupert Murdoch, informed the markets yesterday that it assessing the implications of dividing the firm into two publicly trading entities. Following this announcement, investors caused the company’s shares to surge by 6% after concluding that this was a strong signal indicating that the distressed publishing business will be split from the more profitable entertainment sector of News Corp. The shares of this company plunged last year before rebounding during 2012 after it received financial support from a $10 billion share buyback program.
Roche, the Switzerland-based drug company, advised that it was planning an extensive streamlining of its research activities which involved the departure of its top drug research executive, 1,000 job cuts and the closure of a U.S. plant. A spokesperson stated that these moves would help to maintain its research and drug development costs at their present level despite a significant enhancement of its clinical research projects in the last one and a half years.
With the markets etching out modest gains yesterday, both Apple and Google benefitted as well with the shares of the former appreciating by 0.22% to $572.03 while those of the latter climbed by 0.71% to $564.68. With a bearish sentiment hovering over the markets as a result of persistent global political and economic concerns, look to sell Apple if its share price slumps under $570.75 and Google if its share price drops beneath $564.12.