May 16 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Despite the release of promising economic indicators from both Germany and the USA, Tuesday was once again dominated by further ominous developments in the Greek tragedy. After failing to form a coalition government, announcements were issued yesterday stating that new elections would be held in Greece. This event had the immediate effect of frightening investors over the health of their European assets which lead to stocks plunging, the Euro hitting four-month lows and Gold to tumbling to a 4.5 month low as the chaos in Greece pressured the markets for the rest of the day. Basically, the investors are worried that a pending recession in Europe together with debt contagion will have serious adverse impacts on global growth. Analysts are now expecting that core Eurozone members, such as Germany and France, will begin to exert sustain pressure on Greece as it will run out of money before its elections are held in June. However, these measures may not be that effective since both French and German voters have recently vetoed the present austerity approach adopted by their governments.
All was not totally black on Tuesday as the release of the US homebuilder sentiment demonstrated that it achieved its highest level in five years. In contrast, although the U.S. retail sales climbed 0.1 percent in April, this value was a disappointment as it failed to meet market expectations. Early Tuesday morning, Germany reported that its economy grew by 0.5% in the Q1 of 2012 as a consequence of strong exports. This result was well ahead of market expectations and managed to equalize the recessionary figures issued by Spain and Italy as well as the zero growth value posted by France. Consequently, although the overall economy of the Eurozone may be faltering, it is still not in an official recession. On a negative note, the ZEW Institute survey released yesterday advised that German business confidence had severely dipped in the first two weeks in May as a direct consequence of the Greek chaos and the Spanish and Italian banking problems.
The Euro was hit hard again yesterday with the EURUSD achieving its ninth drop in ten trading days and even managed to plunge below its new lower trendline. The pair did manage to rally early Tuesday by about 40 pips after the release of good economic indicators from both the USA and Germany. However, this movement was short-lived as the Greek political uncertainties cause the EURUSD to plummet by over 100 pips during the rest of the day hitting four month lows. Without question, the problems emulating from the European debt crisis are overwhelming any positive economic data postings, as was witnessed yesterday, and are contributing to a very strong bearish sentiment. As this situation has room to deteriorate even further, look to open a new PUT currency option with the EURUSD as its underlying asset if price falls below 1.2705.
The British pound took a hammering yesterday, with the GBPUSD plunging by nearly 100 pips even breaking below the lower trendline of its recent bullish channel. This development was caused by investors fearing a potential Greek exit from the Eurozone which could cause a massive run on banks, especially those located in Southern Europe. As the USD will attract investment from nervous investors in its capacity as a safe-haven asset, the continuous European drama should strengthen it further against the GBP and will produce a substantial bearish sentiment in the process. Consequently, a good opportunity to activate a new PUT currency option will arise if price can achieve a sustain break below 1.5970.
The British pound took a hammering yesterday, with the GBPUSD plunging by nearly 100 pips even breaking below the lower trendline of its recent bullish channel. This development was caused by investors fearing a potential Greek exit from the Eurozone which could cause a massive run on banks, especially those located in Southern Europe. The falling ADX values are indicative that the present bull channel is beginning to transform into a new bear trend. As the USD will attract investment from nervous investors in its capacity as a safe-haven asset, the continuous European drama should strengthen it further against the GBP and will produce a substantial bearish sentiment in the process. Consequently, a good opportunity to activate a new PUT currency option will arise if price can achieve a sustain break below 1.5970.
Following in the footsteps of the Euro, the CHF weaken substantially against the USD yesterday with the USDCHF surging by over 100 pips resulting in a complete breakdown of its current bull channel. With Switzerland’s close proximity to Europe, the CHF is extremely vulnerable to the chaos ensuring from the Greek political uncertainties and the serious banking problems in both Italy and Spain. In addition, as the USD will be a main beneficiary, in its mode as a safe-haven asset, if the European debt crisis deteriorates further, this pair will be subjected to a strong bullish sentiment in the near-term. As such, consider activating a new buy position if price can achieve a sustained break above 0.9495.
Gold was another victim of the ensuring drama that resulted from Greek politicians failing to form a government yesterday which also caused both the Euro and Stocks to plummet. Gold achieved lows not seen since last December after it plunged through its important support level at 1,560 an ounce on Tuesday. The recent rapid deterioration in the value of this precious metal has resulted in top purchasing-nations, such as India, diving into the market yesterday in an attempt to prevent further declines. However, as analysts are advising that Gold remains very vulnerable to further European upsets, consider selling it if its price drops below $1,542.80 per ounce.
Good German and USD economic indicators produce a rally in the price of oil early yesterday before the Greek election announcements caused to it to tumble to a closing price of $93.98 per barrel. As oil is currently experiencing a strong bearish sentiment, look to sell it if its price plummets below $93.65 per barrel.
A FBI investigation into the trading losses recently announced by JPMorgan was instigated yesterday as a result of the U.S. Securities and Exchange Commission expressing concerns about wrong-way bets that were responsible for this fiasco. Despite this development, Chief Executive Jamie Dimon still received sound support at the shareholders meeting held in Tampa, Florida yesterday. Even so, the bank remains under pressure to attempt to recover some of the substantial payouts made to executives who managed this operation. Dimon advised attendees that JPMorgan was actively undertaking extensive disciplinary measures in order to identify the key culprits.
Home Depot released disappointing quarterly sales that missed market expectations on Tuesday. The main reason cited for this result was a slowdown in home improvement projects in April after the unusual warm weather caused a surge in the early months of 2012. However, the company advised that the issued figures were better than it anticipated and comparable to sales that it normally takes in its yearly second quarter. Although Google bucked the trend yesterday by registering a rise in its share value, the stock markets are presently being subjected to an intense bearish sentiment. Consequently, sell Apple shares if price dips below $552.20 while consider opening a new PUT option with Google shares if their price falls lower than $610.53.