June 7 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Global equities soared yesterday with the Dow Jones Index gaining over 200 point during the session. This rally was caused as a direct result of European bureaucrats striving urgently to produce new policies to help Spain’s troubled banking sector. In addition, rumors were ripe on Wednesday that keys central banks were preparing moves to help boost the global economic recovery. Early during the day, the president of the European Central Bank (ECB), Mario Draghi, emphatically stated that the ECB would not just supply an endless stream of long-term cheap loans in order to counter the inactivity of the European governing authorities. In addition, the ECB left its main interest rate unchanged at 1%. Basically, Draghi adopted a defensive posture waiting for further debt stress to materialize before initiating moves to produce any real solutions of substance.
Atlanta Fed President, Dennis Lockhart, lifted investor optimism yesterday by stating that the Federal Reserve may need to discuss the possibilities of further quantitative easing if either the US economy persists in slowing down or the European debt crisis deteriorates any further. Consequently, the markets will be paying very close attention today as the Fed Chairman, Ben Bernanke, is scheduled to testify in front of the US Congressional Joint Economic Committee. Analysts will scrutinize his every word in order to glean any clues about the Fed’s future stimulus and interest rate policies. Market expectations have heighten significantly lately that the world’s central banks will make efforts to respond to the recent spate of dismal economic indicators released from the USA and China as well the deteriorating chaos in Europe.
Yesterday the euro hit its highest value against the USD since May 29. The pair climbed by over 70 pips during the session on fresh hopes that European bodies will be able to produce a comprehensive financial package capable of providing some real assistance to the struggling Spain banking sector. The markets are now anticipating that additional stimulus actions may be forthcoming from the world’s central banks in the near-term. In particular, the possibilities that the US Fed may introduce such measures sooner than later help to undermine the strength of the USD against the Euro. In addition, the Euro gain further support from the ECB not offering any immediate solutions to the debt crisis or to cut its main interest rate. Will the EURUSD rise further today is a difficult question to answer and will depend mainly on the outcome of the Bernanke testimony? With the pair still trading a deep bearish trend, the safest bet is to consider opening a new PUT currency option with the EURUSD as its underlying pair if price can break below 1.2479.
The British pound strengthened against the USD yesterday as a result of the improving prospects that European authorities could successfully produce a package of financial aid to assist Spain’s debt-ridden banking sector. As such, the GBPUSD managed to rally for the fourth day in a row achieving its best streak since the start of May as the chart below demonstrates. With market optimism increasing that global central banks will soon instigated new stimulus measures, the USD weaken as a result. This is because if the FED introduces new quantitative easing then this action would have the effect of devaluing the USD. This is one of the main reasons why investors will be paying such close to the Ben Bernanke testimony today in order to acquire any clues about the Fed’s next moves. Although, the GBPUSD has enjoyed a good week so far, its overall gains are still quite modest because of the prevailing strong bearish bias. Consequently, look to sell the pair if price drops below 1.5391.
The Australian dollar enjoyed another good day against the USD on Wednesday achieving its third rally in three straight days which is its best run since late April as shown on the chart below. The USD suffered yesterday amid the increased speculation that further stimulus packages will be introduced by the world’s global banks in an effort to reverse the slowdown in the global economic recover. In particular, any such actions instigated by the Fed would have the effect of devaluing the USD causing the AUDUSD to strengthen. Australia is releasing some important economic indicators including its Employment Change, today, followed by its Trade Balance and Home Loans data tomorrow. Investors will study this information to assess whether the country’s economy is still in decline. Although the recent rally has been encouraging for the AUD, its gains have been quite modest when compared to those acquired by the USD during the present bear tread. As such, consider selling the pair if its price plunges below 0.9906.
The CHF strengthen against the USD yesterday as illustrated on the below during a week when the fortunes of the two currencies have oscillated between each other. The Swissie gained support from the positive developments in Europe indicating that a rescue package could be soon composed by the European authorities that will be capable of providing the fiscal aid desperately needed by Spain’s troubled banking sector. Switzerland is scheduled to release three important economic indicators today including its Unemployment Rate, Foreign Currency Reserves and CPI. Analysts will be keen to evaluate this data in order to determine whether they are an improvement over the spate of recent disappointing releases. Although the CHF is enjoying a good week against the USD, this streak could quickly terminate because of the unrelenting bullish bias influencing the pair. As such, consider buying the USDCHF if its price can break above 0.9621.
Gold appreciated in value yesterday achieving a one-month high. This development was caused by a potential US economic slowdown increasing the prospects of a new Fed intervention as well as the rising optimism that a rescue plan will be produced by European bodies to assist Spain’s debt-stricken banks. Gold further extended yesterday the new platform that it created by its 4.3% rally last Friday. Analysts are now advising that gold should receive further boosts in the near-term both from its resurgence as a safe-haven asset and from the increasing speculation about further global quantitative easing. With this new bullish bias in play, consider activating a CALL commodity option with gold as its underlying asset if its price breaks above $1,637.48 per oz.
In unison with the general rally in the commodity markets yesterday, oil rose to close at $85.02 per barrel. However, as oil is still dominated be a strong bearish sentiment look to sell this commodity if its price drops below $83.21 per barrel.
Halliburton announced yesterday that its North American profits would be halved as a result of higher operating costs. The shares of the world’s second-largest oil services company subsequently plummeted by 4% on Wednesday hitting an 8-month low. A spokesperson from the company cited the prime reason for this disappointing development was the escalating cost of guar gum which is an important ingredient used in hydraulic fracturing fluids. Guar gum now accounts for as much as 30 percent of the overall price of this product.
Tempur-Pedic International, the mattress maker, advised the markets yesterday that increased competition had caused it to dramatically curtail its full-year profit forecasts. Following this distressing announcement, the shares of this company plunged by 50% during yesterday’s trading session. The firm anticipates that its sales will now not achieve any growth during 2012 by remaining at about $1.43 billion compared to its previous estimate of $1.6 billion.
Both Apple and Google shares benefitted from the strong stock market rally yesterday with the former surging by 1.53% to $571.46 and the latter climbing by 1.78% to close at $580.57. However, with a strong bearish sentiment still prevailing over equities, sell Apple if its share price falls below $570.89 and look to sell Google if its share price drops beneath $580.05.