May 25 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Stock movement eventually crept higher late yesterday after prices had fluctuated earlier between gains and losses with investors loathed to undertake risk after the release of weak US economic indicators and the ongoing concerns about the Eurozone future of Greece. Data posted on Thursday demonstrated that the US weekly unemployment claims have fallen only slightly last week while the demand for US manufactured products did not rise in April as much as the markets were expecting. These results were summarized by analysts who concluded that although the figures were on the negative side they were by no means depressing. As the day proceeded, equities and other risky assets just about managed to hold their own as unimpressive economic data issued from the USA, China and Europe took its toll by adding to the anxiety of the unfolding Greek drama.
Dismal German manufacturing data posted on Thursday had the effect of intimidating investors by reminding them that no member of the currency bloc was exempt from the ravages of the European debt crisis. The depressing report issued from Germany focused the attention of the markets to the fact that other debt-burdened countries, such as Spain, were also potential candidates to exit the Eurozone along with Greece. The sheer depth of this problem can be appreciated by realizing that many governments, banks and large business corporations were already in the process of devising contingency policies in order to contend with a potential Greek exit.
The euro continued to weaken against the USD yesterday, as it reacted to worse-than-expected business sentiment and poor factory data posted by Germany. The EURUSD almost collapsed to a two-year low by hitting 1.2514 early in the session before rallying later in the day. In addition, evidence produced on Thursday from both China and the USA strongly indicated that the recoveries of the two biggest economies on the globe were in danger of severely faltering as a direct consequence of the fiscal problems emulating from Europe. Such developments increase the plight of the Euro while strengthening the safe-haven USD. With a bearish sentiment totally in control of the directional movements of this pair, look to open a new PUT currency option using the EURUSD as the underlying asset if price falls below 1.2499.
The UK Deputy Prime Minister, Nick Clegg, stated yesterday that efforts must be increased to free up credit and investment as a consequence of the British economy contracting at a faster rate than expected in the first quarter of this year. As a consequence of a significant decline in construction output, data released yesterday highlighted that the UK had now regressed back into its second recession since the 2007-08 financial crisis. This development could increase the possibilities of the Bank of England reversing its present stance by introducing further quantitative easing in order to stimulate the fragile UK economy. Such an action would devalue the British pound and subsequently contribute further to an already strong bearish sentiment hanging over the GBPUSD. Therefore, consider selling the pair if price is able to achieve a sustained break below 1.5641.
The AUD managed to achieve a modest rise against the USD yesterday by presenting more resistance to the dollar than most of the other major currencies. The AUDUSD has now recorded a confirm break below its lower trendline even though it climbed by about 5 pips during yesterday’s trading to finish at 0.9761. Poor data releases from both the USA and China initially increased the pressure on the AUD as they demonstrated to investors that the two largest economies in the world were not immune to the contagion of the European debt crisis. With the current global political and economic uncertainties prevalent, a bearish sentiment will most likely continue to prevail over the AUDUSD for the imminent future. As such, look to sell the pair if price drops below 0.9677.
A very disappointing economic release from Germany yesterday emphatically alerted investors to the fact that debt contagion, which evolved in some European peripheral members, had now spread to core countries. In particular, German industrial growth has recently managed to keep the Eurozone afloat by preventing it from entering a recession. The dismal report released yesterday could change this situation completely and may be the introduction to a new even more distressing chapter to the European debt crisis. Switzerland is right in the firing line of all these developments because of its close proximity to and ties with the Eurozone. One prominent analyst advised yesterday that although the world was suffering from a period of weakening growth, matters were still was not as bad as 2008. However, he concluded that such an eventually could just be a matter of time and could well arrive much quicker than many imagine. On that happy note, consider buying the USDCHR because of such a strong prevalent bullish sentiment if price breaks higher than 0.9602.
The price of Gold rose 0.59% yesterday to $1,557.50 per once managing to reverse three straight days of declines. The precious metal received a boost from data issued by the International Monetary Fund (IMF) informing that its gold holdings that increased in April as a result of the Philippines recently making its biggest deposit in over four years. Specifically the Philippines increased its holdings by 32.13 tons in March. This move complies with the recent trend adopted by many emerging economies to diversify their assets away from the Euro and US Dollar. Despite this welcome breather, gold is suffering from a heavy bearish sentiment at present produced by the European drama. Consequently, look to activate a new PUT commodity option if the price of gold plunges below $1,551.90 per ounce.
Oil prices rose yesterday reversing their recent losing trend after discussions between Iran and world powers about the Iranian nuclear program encountered problems reviving fears that a new Mideast clash could disrupt global supplies. With a strong bearish sentiment still heavily influencing its price movements, look to sell this commodity if its price drops below $89.90 per barrel.
Analysts announced yesterday that they were very supportive of the plan presented by Hewlett Packard on Wednesday to shed a significant percentage of its workforce in an attempt to stimulate growth .However, they also pointed out that the company may have to do more to regain the markets’ confidence because of the increasing attractiveness of mobile computing devices, such as the Apple iPad, which have eroded the sales of HP personal computers in recent years.
A dramatic development occurred yesterday after NetApp, the data storage equipment maker, released forecast revenues well below market expectations causing its shares to plunge by 18%. A spokesperson advised that the company’s growth had been adversely influenced by the declining spending power of some of its main clients, such as US intelligence agencies and the U.S. military.
The shares of both Apple and Google fell on Thursday with the former dropping by 0.92% to close at $565.32 whilst the latter plunged by 0.95% to finish the trading day at $603.66. Consider selling Apple if the price of its shares declines below $564.25 and sell Google if its share price plummets under $601.78 because of the uncertainties arising from the European chaos.