June 8 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Yesterday, the US Labor Department presented some good news when it advised that the initial claims for state unemployment benefits had fallen during the previous week by 12,000 to 377,000 hitting analysts’ expectations. This result helped to induce fresh optimism into the markets following the bleak labor report issued last Friday. Many economists are now citing the unusually warm weather during the winter months as the prime reason for the recent poor non-farm payroll figures. They theorized that employers were encouraged to hire more staff during that time only to subsequently release them in spring. Equities also received a boost earlier during the day after the Chinese central bank announced cuts in both its deposit and lending rates. The unexpected move to slash its interest rate by 25 basis points is an attempt by China to stimulate its stagnating economy.
The dramatic stock rally on Wednesday causing the Dow Jones Index to rise by over 270 points was caused by investors hysterically speculating, somewhat illogically, that new potential Fed action was in the offering. They deduced this observation after both the Fed vice-chair, Janet Yellen, and Atlanta Fed President, Dennis Lockhart, voiced opinions on Wednesday suggesting that more quantitative easing could be under consideration as a result of the European chaos. However, the markets were very disappointed yesterday as comments from Ben Bernanke, during his testimony in front of the US congress, severely suppressed this notion. As such, equities pared their early gains as Bernanke informed Congress that no fresh stimulus measures were presently in the pipeline although he did state that the Fed was ready to act should the US economy recovery faltered dramatically.
The pair did initially rise as high as 1.2623 following the good US unemployment figures, the Chinese bank rate cuts and speculation that the Fed was on the brink of introducing new stimulus measures. However, gains were pared after both Bernanke advising the US Congress that there was no immediate plan in place to introduce fresh quantitative easing and the Fitch rating agency once again cutting Spain’s credit rating. Consequently, the USD regained some of its posture on Thursday after recently suffering from the threat of further stimulus action devaluing its worth against the Euro. With this restriction removed, the EURUSD is now likely to resume its downward trend under a strong bearish sentiment. As such, look to sell the pair if its price can attain a sustain break beneath 1.2529.
On Thursday, the Bank of England made no changes to its interest rate by leaving it changed at 0.5%. The central bank also advised that it intended to retain its present stimulus plan at GBP325 billion. Another economic indicator released yesterday revealed that the U.K. service sector had expanded faster than analysts had forecasted during May extending the strong growth recorded in April. Specifically, the U.K. services purchasing managers’ index beat the expected 52.7 by registering 53.3 in May which was the exact reading recorded in April. The GBPUSD climb in value during Thursday to record its fifth daily rise in a row primarily because the threat of further UK quantitative easing had been removed for the time being. With the GBP gaining momentum during this week against the USD, consider opening a new CALL currency option with the GBPUSD as its underlying asset if price can break above 1.5543.
Although the AUD rose by about 50 pips initially against the dollar yesterday following the news that the Chinese central bank had cut its interest rate, the pair retracted later in the day. The Australian economy and currency normally benefit from the releases of positive Chinese economic news because its giant neighbor is Australia’s chief exporter. The AUDUSD recommenced its downward journey after it rebounded against the upper trendline of its current bearish trend. This latter movement was produced after Ben Bernanke disappointed the markets by stating that no new stimulus policies were currently in the pipeline. With the faster-moving 50MA (blue line) well beneath the slower 100MA (green line), the present bearish trend is still very much intact even after the recent brief AUD rally. Consequently, consider activating a new PUT option using the AUDUSD as its underlying asset if price can sustain a break below 0.9859.
This additional decline arose following the release of a number of significant US and Swiss economic indicators on Thursday. US continuing jobless claims climbed to 3.293 million from 3.259M while the Initial jobless claims plunged by 12,000 hitting the expected 377K. On the other side of the pond, the Swiss CPI recorded a worrying drop of 1.0% in May. In addition, the Swiss National Bank (SNB) advised the markets that its holdings of foreign reserves had surged to record levels. The SNB also stated that it plans to maintain the EURCHF cap in place at 1.2000 for the foreseeable future that it instigated last September. With the USDCHF bearish rally gaining some steam, consider selling the pair if price can break below 0.9513.
The price of gold crashed yesterday after U.S. Federal Reserve Chairman Ben Bernanke advised the US Congress that further stimulus measures were presently not in active negotiation. Investors reacted to Bernanke comments by immediately relinquishing their bullish gold bets which they had instigated following last Friday’s bleak US labor report. Compared to other commodities and equities, gold sustained a much bigger decline yesterday because big institutional traders were utilizing it to hedge their risks against the uncertainties of new quantitative easing. The precious metal has now seen almost 50% of the gains it acquired since last Friday wiped out. With gold losing its shine and the prospect of new stimulus measures dramatically reduced, this commodity is now confronted by a renewed bearish sentiment. Consequently, consider selling gold if its price plunges below $1,587.70 per ounce.
Although oil prices rose following the Chinese rate cut yesterday they retracted later following Bernanke’s anti-stimulus comments. With this commodity still under heavy pressure from a strong bearish bias, consider selling it if its price plummets below $84.03 per barrel.
The smartphone manufacturer, HTC, issued warnings yesterday that it had been named in a lawsuit by one of its main competitors, Apple, and that its revenue stream would be significantly lower compared to that initially predicted. Following this announcement, the shares of the firm plunged to their lowest level in two years. HTC sliced its Q2 revenue target by 13.3% identifying poor sales to Europe and the United States as primary reasons for doing so. To enhance problems even further, Apple has just filed a new enforcement action intended to block HTC imports of new tablets and smartphones.
Richard Schulze, who is the founder and chairman of Best Buy Co, announced his resignation from the firm’s board yesterday. Best Buy shares dropped by almost 8.5% on Thursday in wake of this development although they did recovered much of this loss later in the day.
With the markets paring most of their earlier gains, Apple and Google had a mixed day with the former holding its own closing up 0.05% at $571.72 while Google folded under the pressure finishing down 0.40% at $578.23. With the possibilities that new stimulus measures have been dramatically reduced, sell Apple if its share price drops beneath $570.73 and consider selling Google if its share price plunges beneath $577.89.