May 15 Daily Market Review
Financial Market Overview
Yesterday, the Euro dropped to a four-month low as global stocks continued to tumble resulting from fresh Greek and Chinese concerns. Specifically, the ramifications of a Greek exit from the Eurozone are beginning to stress investors as such an event could cause a dramatic run on banks based especially in Southern Europe. Also, analysts concluded that the Chinese actions last Saturday to reduce the cash reserves held by its banks to support lending were a possible indication that the health of the Chinese economy was weaker than they had previously realized. Consequently, European shares plunged to their lowest levels seen in nearly two months not only because of these developments but also because economic indicators released yesterday pointed to a deepening recession. In particular, factory output in the Eurozone surprisingly declined in March indicating that its recession may be more severe than politicians have recently been claiming.
Despite last minute efforts by the Greek president to form a new government and avoid a second election, he received hardly any support from political leaders yesterday which has enhanced fears that Greece is now on course for an exit from the Eurozone and bankruptcy. Some analysts are advising that such an eventuality would be nothing more than catastrophic and could cause another 2008 stock crash. If all this news was not depressing enough, the main core member of the Eurozone, Germany, is also experiencing significant political problems. On Sunday, the German Chancellor Angela Merkel’s party, the Christian Democrats, was emphatically rejected by voters allowing the main left-wing opposition to intensity their objections against her austerity policies to address the European debt crisis. Merkel responded yesterday that she planned to maintain her present course although the election results were bitterly disappointing.
The Euro is receiving little respite from the continuous downward pressure caused by European debt contagion and a potential global slowdown that is beginning to appear worse than originally thought. Consequently, the EURUSD dropped lower during yesterday’s trading within a bear channel that is strengthening as demonstrated by the rising ADX readings. With the US corporate earnings season coming to a close, the only events that can now slow this downward spiral are good economic news releases, which are becoming more infrequent by the day. As such, in coming months the developments in Europe will, more than likely, dominate the directional movements of the EURUSD. As the prevalent bearish sentiment will cause the pair to weaken further, a new PUT currency option should be considered using the EURUSD as its underlying asset if price plunges below 1.2800.
The British pound fared much better yesterday against the USD than most of the other major currencies. The prime reason for this is that the Bank of England (BOE) announced last week that it was not intending to support the fragile UK economy with any further quantitative easing as it was more concerned about inflation. Consequently, without the threat of additional stimulus which would cause the British pound to devalue, the GBPUSD rose yesterday closing just over 1.6100. Tomorrow, the BOE will publish its inflation report and its chairman King is scheduled to speak shortly afterwards. Analysts will be scouring both events for any clues concerning future monetary policy and will view a hawkish speech as bullish for the pound. As the ADX value is declining in value, this implies that the present bearish movement possesses a slight precedence. As such, a good position to consider a new sell position would be if price drops below 1.6050.
The AUD depreciated against the USD significantly not only because of the depressing news from Europe but also because of Chinese data indicators pointing to an economy which is in a worse shape than most analysts expected. The Australian economy is very linked into that of its giant neighbor and is seriously affected by any signs of deterioration in the latter. The AUDUSD weakened further yesterday within its present bear channel which is currently gaining momentum as indicated by the rising ADX values. As Australian stimulus policies are also helping to undermine the AUD, this pair is subjected to a heavy bearish sentiment in the short term. As such, look to open a new sell position if price is able to sustain a clear break below 0.9925.
The CHF tracked the Euro yesterday by weakening significantly against the USD. In fact, the USDCHF managed to break above the upper trendline of its new bull channel achieving an almost four month high by closing at 0.9353. The presently stable USD is more likely to gain from the turmoil in Europe and a slowing global economy than the CHF in its capacity as a safe-haven asset. Consequently, a strong bullish sentiment should preside over this pair for the foreseeable future unless some positive economic indicators can reverse this process. As such, look to open a new CALL currency option using the USDCHF as its underlying asset if its price can surge above 0.9375.
The price of Gold collapsed again yesterday hitting a four month low by closing at $1,561.00 per ounce as Greek politicians failed to form a new coalition government placing the country at an increased risk of bankruptcy and a pending Eurozone exit. Investors now fear that the dreaded ‘domino effect’ will cause European debt contagion to spread more rapidly through other member countries. This year, gold has been tracking the movements of riskier assets very closely as traders seek the sanctuary of safe-haven assets, such as the USD. With a strong bearish sentiment dominating, look to sell Gold if its price plunges below $1,558.75.
Oil prices plummeted yesterday as the Greek political deadlock and further signs of a slowdown in the Chinese economy, the world’s second-biggest energy consumer, took their toll on the future demand for fuel. With a heavy bearish sentiment prevailing, consider selling oil if its price drops below $94.28 per barrel.
Groupon released its first quarterly profit figures yesterday which demonstrated that it efforts to control its marketing budgets while attracting new customers and suppliers were successful causing its shares to rocket by 11%. Reports issued showed that the company now has 36.9 million subscribers which helped it achieve its largest daily gain in stock value since it went public in November 2011.
The new chief executive of Yahoo, Ross Levinsohn, announced to the markets that the company was planning to revive its media-centric strategy. The previous News Corp executive is expected by analysts to introduce extensive new experience of deal-making and digital media experience into Yahoo. Shares rose on Monday following these events which clearly impressed investors.
Both Apple and Google are evaluated by market analysts as very good buys but are having difficulty living up to this rating within the present difficult environment produced by the European debt chaos and a slowdown in global economic growth. Both companies again returned daily losses yesterday in unison with the general fall in stocks. With the corporate earnings season almost finished, a bearish sentiment over stocks is most likely to be dominant in the near future. Consequently, consider selling Apple shares if its price continues to fall further below $557.95. Look to sell Google shares if price drops beneath $603.56.