June 29 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Following the news that the US Supreme court had voted in favor of President Barack Obama’s healthcare amendments yesterday, the already stressed Stocks Markets crashed even further as epitomized by the Dow Jones Index dropping by over 100 points before rebounding sharply late in the session. In particular, this announcement caused the shares of many companies in the healthcare sector to decline in value amid increased volatility. Investors reacted in this way because they were caught off-guard by this decision since many expected that this healthcare modification would be rejected since its central concept involves government authorities expediting regulations to the potential detriment of US businesses.
Earlier on Thursday, equities had already been struggling primarily because investors have little confidence that the 2-day EU Summit, commencing yesterday, will produce any new quality policies capable of bringing the European debt crisis under control. In addition, the markets were unimpressed after a spokesperson for the German finance minister advised that a report suggesting that Germany was ready to back an initiative accepting a shared liability of the Eurozone debt was totally unfounded and had no credence. European leaders attending the Summit remain at loggerheads about how best to resolve the region’s debt crisis. However, urgent attempts are in progress to produce financial procedures that can alleviate the current Spanish and Italian fiscal stress. The yields of the Spanish 10-year bonds again probed their critical 7% on Thursday which was the level that forced other Eurozone members to first instigate their bailout requests after their equivalent bonds exceeded it.
The Euro finally caved in yesterday to the persistent uncertainties about whether the EU Summit can deliver anything fruitful to resolve the European debt crisis. The EURUSD crashed by almost 100 pips yesterday hitting its lowest level at 1.2406 in three weeks. An even deeper collapse was avoided because investors were refraining from selling the Euro further just in case any surprise positive developments were issued by the EU Summit which could instigate a rally. Analysts are now advising that the EURUSD could target a two-year low of $1.2286 if the pair starts to weaken again. The EURUSD is presently struggling under a serious bearish bias generating by the significant concerns of both the European debt crisis and the global economic slowdown. Consequently, look to sell the pair if price breaks below 1.2415.
The British pound struggled badly against the USD on Thursday with the GBPUSD crashing by over 100 pips. In the process of extending its losses, the pair broke beneath its psychologically important 1.5500 level to achieve a two week low. The main driver behind this downward plunge was investors adopting a risk aversion stance as they await the outcome of the two day EU Summit concluding today. The daily chart below is now producing technical evidence that the GBPUSD bearish trend is gaining momentum. Fundamentally, the USD will continue to acquire further support as investors flock to safe-haven assets in order to protect their investment portfolios from global economic and political uncertainties. In addition, the GBP is under threat of devaluation should new stimulus measures be introduced by the Bank of England. With the GBPUSD experiencing a significant downward pressure, seek to sell the pair if price plummets beneath 1.5498.
The Australian dollar plummeted against the USD on Thursday with the AUDUSD dropping by nearly 120 pips to test its parity level. This dramatic development was caused by investors fleeing to safe-haven assets such as the USD amid worries about both a deteriorating US economy and the lack of any real substance arising from the EU Summit capable of addressing the region’s serious debt problems. The pair hit a two low after breaking beneath its important support level located at 1.0018. After achieving a short bull rally over the last two days, the AUDUSD finally succumbed to the omnipresent pressure produced by the current global economic and political uncertainties. If the pair achieves a sustain break below its parity level, then this will open the door to target a fresh low at its next main support level located at 0.9967. With a strong bearish bias prevailing over the AUDUSD, look to open a new PUT currency option with this pair as the underlying asset if price drops beneath 1.0014.
Similar to other major currencies, the CHF also came under considerable pressure from the USD on Thursday with the USDCHF surging by almost 90 pips hitting a three week high. This movement was primarily produced after investors became increasingly nervous following the German Chancellor, Angela Merkel adopting an increasing isolated position in the last two days ahead of the EU Summit. In addition, she has made a number of remarks that do not favor key proposals championed by her peers from France, Italy and Spain. Developments such as these exert a considerable downward pressure on the CHF because the USD gains in strength from its safe-haven status. Consequently, many analysts anticipate the USDCHF will strengthen further in the short-term at least. As such look to sell the pair if price breaks above 0.9668.
The price of gold plummeted by over 1.7% yesterday hitting a four week low in the process. This movement was caused by concerns that a US Supreme Court decision to uphold an Obama healthcare initiative could restrict the US economic recovery. In addition, investors are very nervous about whether the EU Summit has the ability to formulate policies to resolve its devastating debt crisis. In particular, the gold markets are concerned that because the European leaders will be desperately firefighting the financial turmoil in Spain, Italy and Greece, they will not be able to instigate additional stimulus measures. In such an eventuality, the impact of gold could be quite grave, in the short-term at least, as it will be subjected to significant downward pressure. Consequently, as this outcome is favored by most analysts, consider selling gold if its price slumps below $1,549.08 per oz.
The price of oil fell on Thursday in unison with the stock markets following a ruling by the US Supreme Court. As the oil market is currently subjected to a strong bearish sentiment, consider selling this commodity if its price slips beneath $75.56 per barrel.
After the New York Times disclosed on Thursday that JPMorgan Chase & Co could suffer as much as $9 billion losses from its recent credit-derivatives trading fiasco, the firm’s shares plunged by 4%. The newspaper stated that the final losses could well exceed the initial estimated $2 billion as final positions are closed. A report produced internally by JPMorgan concluded that losses could be as high as $9 billion in the very worst case. The bank has seen its shares plummet by 13.7% since 10th May when it first announced this trading calamity.
After the US Supreme court upheld Obama healthcare amendments, the shares of large health care insurers fell while those of the major hospital chains appreciated. Aetna witnessed its stock decline by 4% while Community Health Systems, one of the largest US hospital organizations, saw its shares appreciate by 6%.
The stock market decline on Thursdays caused both Apple and Google to fall in unison with the shares of the former dropping by 0.95% to $569.05 while those of the latter slumped by 0.88% to $564.31. With a heavy bearish sentiment encompassing the markets, consider selling Apple if its share price plummets below $568.70 and Google if its share price slips beneath $562.79.