May 14 Weekly Market Analysis
Financial Market Overview
The most inexpensive energy costs in almost six months caused the US producer prices to fall during April which caught most analysts by surprise last Friday. In addition, the Reuters/Michigan Consumer Sentiment Index achieved a four year high by rising from 76.4 last month to 77.8 beating the expected 76.2. European government debt costs registered an increase on Friday resulting from political uncertainties which saw the German Bund futures hitting an all-time high. Other signs of increasing pressure within the Eurozone were generated by the Greek stock market plummeting to 20 year lows and the failure of Spanish plans, intended to control its 4 year old banking crisis, to impress investors. The disappointing release of the Chinese industrial output data late last week, also increased concerns about a global economic slowdown, as it expanded in April at its lowest rate in nearly three years.
The most prominent US economic events this week are the publishing of the FOMC minutes on Wednesday and the posting on Thursday of the CPI numbers. The ensuing results will help investors assess the probabilities of the Fed instigating further quantitative easing in the near-term. However, Europe will almost certainly be the main focus because of issues such as the Spanish banking sector, European economic growth and the political uncertainties in Greece. Important data releases include the Eurozone’s Q1 GDP and CPI data which will assist the markets in assessing the potential growth of the bloc. In particular, a disappointing GDP will increase pressure on the Euro, equities and commodities.
Last week the pair finally broke out of its four month’s trading range by plunging below its critical support at 1.3000 and forming a new bear channel. This development occurred as a direct result of the deteriorating European debt crisis. This week the posting of the Eurozone’s GDP figures is anticipated to show that the region has entered a new recession. Developments from Spain and Greece will also heavily influence EURUSD movements. As many analysts fear that Greece could lose its Eurozone membership under a new government, the dreaded “domino effect” is producing a strong bearish sentiment against the Euro. With the USD remaining relatively stable, the downside risks to the EURUSD are significant. As such, consider activating a new PUT option if price plummets below 1.2875.
The GBPUSD dropped back inside its previous bull channel during last week to finally close on Friday at 1.6072. The dollar appreciated against the British pound after the positive employment and consumer confidence data released during last week. Also, poor UK housing data was another factor that caused the GBP to weaken. The UK will be releasing some key economic indicators this week with its Trade Balance posted on Tuesday, unemployment claims and Bank of England’s inflation report on Wednesday. The GBPUSD is now experiencing an increasing bearish sentiment as a result of better-than-expected postings of US economic indicators together with the deteriorating European debt crisis. These two influences are causing investors to flock towards the USD in its capacity as a safe-haven asset. As this trend is very likely to continue this week, a PUT currency option could be opened, with the GBPUSD as its underlying asset, if price breaks below 1.6000.
The AUD constantly weaken during this time as a consequence of the measures taken by the Australian government to stimulate its flagging economy. There are a number of major economic indicators to be released from Australia during this week including the Monetary Policy Meeting Minutes on Tuesday, Consumer Sentiment on Wednesday and Inflation Expectations on Thursday. The AUDUSD is now subjected to a strong bearish sentiment as a result of the chaos in Europe and because of the Australian stimulus policies which are devaluing the AUD. Consequently, look to open a new PUT currency option with this pair as the underlying asset if price plummets below parity at 1.0000.
The USD/CHF continued to climb by a total of 45 pips within a new bull channel last week. The pair succeeded in dodging the extensive volatility that affected many other currency pairs caused by the dramatic events occurring within Europe. The CHF managed to prevent a stronger USD rally because most recent releases of economic indicators from Switzerland have either met or exceeded market expectations. As there are only three major Swiss events this week, analysts are not expecting any extensive USDCHF movements. On Monday, the PPI data will be posted and the Chairman of the Swiss National Bank is scheduled to speak. ZEW Economic Expectations will be issued on Wednesday. The USDCHF is, however, still experiencing a strong bullish sentiment because of the European debt crisis and because of the strength of recent US data. As such, a good opportunity to open a new buy position would be if price can achieve a sustain break above 0.9330.
Gold achieved its biggest weekly decline in 2012 after its price plummeted by 1% on Friday resulting from a deteriorating European debt crisis and significant price drops in both equities and commodities. To make matters worse, this metal also suffered from pressure caused by the JPMorgan Chase billion dollar fiasco that was announced on Friday. With gold enduring a significant bearish sentiment which is very likely to continue throughout this week, consider opening a PUT commodity option if its price should plunge below $1,576.90 per oz.
The price of oil plummeted last Friday despite better-than-expected U.S. consumer confidence data. This was because a poor release of industrial growth data from China instigated concerns that oil demand may slacken from the world’s No. 2 oil user. Consider selling oil if its price falls below $95.56 per barrel.
On Friday, the stock markets were taken aback after JPMorgan Chase revealed that a ruinous hedging strategy had produced a $2 billion trading loss. The effect of this disaster caused the shares of JPMorgan’s shares to crash immediately by over 8%. A report in the Wall Street Journal, issued in April, identified the source of this fiasco as the eccentric trading of Bruno Iksil, a credit trader located in London.
After its last week’s roadshow aimed to capture investor interest, sources advised on Friday that Facebook’s initial public offering (IPO) was already oversubscribed. If this statement is true, then analysts are expecting that this company will raise almost $10.6 billion by selling 337 million shares between $28 and $35 each. The company has scheduled its stock market open for the 18th May.
Stocks are presently undergoing a bearish sentiment as a result of the developments in Europe having superior influence over the releases of good US economic indicators. This effect was evident last Friday when the Dow Jones index rose by about 70 points after good US data was released only to close recoding a daily decline as Europe weighed. As both Apple and Google shares experience this exact movement on Friday, consider selling Apple if its share price falls below $565.00 while a good opportunity to sell Google will occur if its share price drops below $602.53.