May 1 Daily Market Review
Daily Market Analysis by OptionRally
Global shares were on track to record their first monthly loss in 2012 as they inched lower during yesterday’s trading following further signs of a slowdown in the U.S. economy and that Spain had officially entered a recession. As a result, the EURUSD fell moderately, the USDYEN slipped to a two-month low and Treasury prices increased as concerned investors opted for safe-haven investments as they nervously watched the economic problems in both Europe and the USA mount. With its domestic demand declining, Spain became the next Eurozone member to regress into recession joining the ranks of Belgium, Netherlands, Greece, Portugal and Italy. Economic data released yesterday also showed only a moderate increase in US consumer spending during April and that Midwestern business activity fell dramatically during this month. The markets viewed these results as strong indications that an increasing slowdown in the US economy was now evident.
Investors are also particularly concerned that European governments may adopt softer measures to control their budget deficits because of the fresh signs released yesterday indicating a deepening euro-zone recession. Indeed, a number of member countries are already under severe stress to cut spending in order to diminish their debt burdens to bearable levels. Generally, trading was low yesterday ahead of the bank holiday today, the ECB meeting on Wednesday and the Greece and French elections that are taking place this coming weekend. As a result of the events of yesterday, the ECB meeting will now take on more prominence as it will have to evaluate the impacts of the Eurozone’s deteriorating economic outlook. The important weekend elections in Greece and France would be plagued by intensifying hostility towards the proposed austerity measures especially after similar outbursts caused the collapse of coalition governments in both Romania and Netherlands last week.
As a result of the deteriorating economic climates in both Europe and the USA, the EURUSD declined moderately yesterday by about 20 pips closing near to 1.3230. As the chart below illustrates, the pair again repeatedly hit its head against the upper trendline and failed once more to break above this important level. In addition, the trend strength indicator, ADX, continued to fall which is indicative of tight range-trading. In light of these developments, the EURUSD is very likely to retract back towards its lower trendline if it can achieve enough momentum to pierce the upper one. As such, a good opportunity to sell this pair will occur if price breaks below 1.3210.
As the chart below shows, the GBPUSD retracted yesterday as a result of the USD acquiring support in its mode as a safe-haven asset following the release of data indicating that the economic outlooks in both the USA and Europe were worsening. Even though this pair successfully broke above its upper trendline last week, there is a serious possible that it will now recede back below it. This speculation is fueled by the news last Friday that the UK is now officially in recession. Consequently, the Bank of England may be forced to rethink its stance on instigating further stimulus measures. Should such steps become necessary, then these actions would seriously weaken the GBP causing the GBPUSD to plunge in value. A good position to sell this pair will arise if price breaks below 1.6180.
The USD appreciated yesterday against the AUD in its role as a safe-haven asset as data released indicated deteriorating economic outlooks on both sides of the Atlantic. In addition, the AUD is prone to additional significant stress as a result of the present slowdown in the Chinese economy. Consequently, although the AUDUSD successfully managed to breakout of its current bear trend last week, this success may only be short-lived. The falling value of the trend strength indicator, ADX, also supports this viewpoint. As such, a good opportunity to sell the AUDUSD would occur if price is able to break below 1.0380.
The USDCHF managed a moderate climb yesterday of about 10 pips as a result of the USD strengthened across the board against a basketful of currencies. As the Swiss National Bank is currently advising that it regards the strength of the Swissie to be a serious problem, it has issued warning that it will instigate corrective measures at any time to resolve this difficulty. Such steps would have the immediate impact of weakening the CHF. As such, a good buying position of the USDCHF will occur if price is able to break above 0.9105.
The table below shows yesterday’s performance of OptionRally’s Commodity Options. Gold prices inched up yesterday to add further gains to those it made last week. However, gold completed the month of April by falling slightly lower by about 0.2% which its third consecutive monthly drop. This performance was a direct result of declining hopes of more monetary easing by the Fed together with a strong corporate season. Many experts are advising that gold’s next target could be $1,790 an ounce, which is its February high although this may be achieved as a gradually grind as opposed to a fast acceleration. If this viewpoint is validated, then a good position to buy gold will occur if price can break above $1670.50 per ounce.
Oil prices fell yesterday as a consequence of increasing concerns about Spain regressing into an official recession and the prospects of an imminent US economic slowdown. U.S. crude finished the day by closing at $104.87 a barrel. If the global slowdown increases and becomes more widespread, then the downward trend should continue. As such, a good selling position will occur if price can break below $103.74 per barrel.
The table below shows yesterday’s performance of some of OptionRally’s main Stock Options. Microsoft Corp is entering the lucrative e-book market by financing $300 million in ‘Barnes & Noble’ Nook e-reader. This is an attempt by Microsoft to attack the grip held by Amazon and Apple on the prosperous tablet computer market. Microsoft, the largest software maker in the world, is also scheduled to launch its new touch-enabled Windows 8 operating system in about 6 month from now. As such, the insertion of a Nook app onto Windows should enable Microsoft to directly compete with Amazon’s Kindle Fire and Apple’s iPad. In addition, Microsoft will now have a footing in the electronic publishing industry for downloadable college textbooks.
Apple shares fell yesterday by 3.15% closing at $583.98. However, as analysts’ consensus still has this company listed as a good buy, an opportunity to buy this company’s shares will occur if price breaks above the recent high at $612.90.
Google and its board were litigated yesterday by a stockholder who wants to stop the company’s stock split plan because it embeds the company’s co-founders Larry Page and Sergey Brin. Although Google shares did initially sell –off yesterday, they did rally towards the end of the day closing at $604.85. As analysts list Google as a buy, a good position to open a call option would be if price penetrates the recent high at $614.23.