June 6 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
The publication of a better-than-expected US economic indicator yesterday managed, at least, to temporarily neutralize the ever-increasing anguish arising from the European debt crisis resulting in the markets merely fluctuating about their opening prices. The Institute for Supply Management announced on Tuesday that its index had inched higher from April’s 53.5 to last month’s 53.7 as a result of an improvement in new orders. Investors took particular delight from this event as it registered the first positive posting following a recent spate of disappointing releases. Analysts summarized this result by stating that by beating the market expectation it demonstrated that at least the service sector of the US economy was still healthy and expanding.
However, this optimistic news served only to hold the strong bearish sentiment hanging over the markets at bay as worries over the deterioration of European debt contagion weighed heavily on both equities and commodities. Investors were particular taken aback on Tuesday after Spain’s Treasury Minister, Cristobal Montoro, announced that his country desperately needed fiscal aid from the Eurozone in order to help liquidate its heavily indebted banking sector. In addition, he emphasized that his nation was now effectively unable to raise any further borrowing on its own accord from the bond markets because of Spain’s very high borrowing costs. Also, of serious concern was the European data releases posted early Tuesday demonstrating that the economies of most of the members of the currency bloc were in various states of decline including even that of Germany which was no longer exempt from the ravages of debt contagion.
The euro depreciated in value against the USD yesterday after Spanish officials advised the markets that their country was struggling to raise additional finance from the bond markets. This headline news caused the EURUSD to drop by over 100 pips before it staged a limited rally later in the day following the unexpected release of a better-than-expected US economic data. The fate of this pair for the rest of this week now heavily depends on the disclosures from the G7 meeting, in progress, and the European Central Bank conference scheduled today. Some analysts have fretfully pointed out, that with debt accumulating world-wide and no worthwhile policies arising from any prior major meetings they believe that nothing will emerge from either the G7 or ECB. They concluded by stating that the debt crisis could easily fester totally out of control if this glum prediction is proven to be correct. With such a dire bearish bias plaguing the EURUSD, consider selling the pair if its price breaks below 1.2423.
Yesterday, although the UK stocks markets were closed because of the Queen’s Jubilee celebrations, the British pound was still pressurized by the USD earlier in the session forcing it to a low of 1.5320. The pair did, however, manage to rally later in the day. This movement terminated the recent GBPUSD rally so that the pair now looks set to resume its downward journey. In fact, as the chart below demonstrates a new bear trend has just been instigated with the faster-moving 50MA (blue line) dropping below the slower-moving 100MA (green line). The rising ADX values displayed at the bottom of the chart also suggest that this new trend is increasing in strength. With a strong bearish sentiment strangling the directional movements of the GBPUSD as a consequence of European debt contagion, consider selling the pair if price can attain a sustain break below 1.5351.
Following last month’s surprised 50-basis points interest rate cut, the Reserve Bank of Australian followed it up by announcing yesterday another cut of 25 basis points. This move dropped its interest rate from 3.75% to 3.50%. The RBA considered this action necessary in order to help stimulate the Australian economy that had suffered during the last months from the deteriorations in both the European debt crisis and the Chinese economy. As the chart below demonstrates, this action helped the AUD rally against the USD later in the day after the AUDUSD had initially plunged following the earlier Spanish ‘no credit’ announcement. Although the rate cut provided the AUD with a slight respite on Tuesday, it is still under intense pressure from the USD as the pair is currently trading a deep bearish channel. Consequently, consider activating a new PUT currency option using the AUDUSD as its underlying asset if its price can slump beneath 0.9716.
The recent brief rally of the CHF against the USD abruptly ended on Tuesday as shown on the chart below as the European debt crisis spiraled even further out of control. Again, the CHF movements correlated very closely to that of the Euro with both currencies losing about 70 pips against the USD during yesterday’s trading. The pair seems now set to resume its upward movement as the USD is constantly gaining strength in its role as a safe-haven asset from the chaos emulating from Europe. The pair is currently trending a very strong bullish channel whose strength is only increasing as demonstrated by the climbing ADX values shown in the bottom of the chart below. With such a bullish bias exerting intense pressure on the directional movements of the USDCHF, look to buy the pair if price can achieve a sustain break above 0.9665.
Gold prices edged higher yesterday producing further support to last week’s new bullish bias as anxious investors had to content with a spate of disappointing economic data releases from Europe. They were also trying to forecast the possible outcomes of the ECB’s meeting scheduled to start today. The precious metal appears to have further regained its shine as a safe-haven asset following its appreciation in value yesterday after business surveys indicated that all member nations of the currency bloc were now in various states of recession, including Germany. Market nerves took a special hit on Tuesday following the announcement from Spain that it did not have the support of the credit markets anymore which also boosted gold. With a new bullish sentiment prevailing over this commodity, consider buying gold if its price surges above $1,618.60 per oz.
The price of oil fluctuated yesterday before finally closing up $0.31 per barrel at $84.29. However, with a strong bearish bias still dominating its directional movements, consider selling oil if its price plunges below $ 82.29 per barrel.
Groupon, the world’s largest daily deal company, saw its shares slump dramatically by almost 10% yesterday after the IPO, that it activated late last year, was finally closed. The decline was so fast and sharp that it caused a circuit breaker to intervene activating a short halt preventing even greater losses. Investors, who caused this event to happen, are normally restricted from selling their holdings until 6 months after the IPO. As the Markets were expecting such a development to happen for some time, Groupon shares had been under some sizeable pressure during recent weeks.
On Tuesday, Australia’s Qantas Airways notified the markets about its first annual net loss since 1995, the year in which it was originally privatized. The company cited that the main reasons for the significant losses were soaring fuel costs and poor flight demand. After this announcement, the company’s shares plummeted by a fifth of their value to hit an historic low.
Despite the Stock markets enjoying a moderate rally yesterday, both Apple and Google shares fared badly by dropping in value with the former slumping by 0.26% to $562.83 and the latter plunging by 1.41% to close at $570.41. With equities still struggling under a dominating bearish bias, sell Apple if its share price falls beneath $562.03 and look to sell Google if its share price drops below $568.02.