May 3 Daily Market Review
Financial Market Overview
A day after the Dow Jones index hit a four year high, U.S. stocks suffered a modest loss yesterday as the ADP unemployment report showed that the private sector hired fewer new workers in April than it had done in the previous seven months. The figures released indicated that U.S. private employers engaged just an additional 119,000 workers last month which was well short of the anticipated 170,000. Investors will now nervously await the posting of the US non-farm payrolls on Friday to see if this number also disappoints to the downside as it did last month. The markets endured further stress yesterday emulating from a drop during April in new orders for US factory goods which was their biggest decline in nearly three years.
If these events were not disappointing enough, a fall in the European purchasing managers’ index dropping to its lowest level since June 2009 was a clear sign that the industrial output in the Eurozone weaken last month. The economic problems in Italy and Spain now appear to have infiltrated core Eurozone members, such as Germany and France, as factory orders across the entire region faltered during April. The ECB meeting scheduled for tomorrow will now be under increased pressure to utilize bond buying and other stimulus procedures to help its stressed peripheral members cope with their massive debt issues. The central bank may also need to adopt new policies to cut borrowing costs although such a move would substantially weaken the Euro against other currencies. With the dangers of growing public unrest in ascendancy, the elections in Greece and France this weekend could inject more turmoil into the European debt drama.
Daily Market Analysis by OptionRally
The Euro plunged lower yesterday against the USD after economic releases demonstrated that U.S. firms employed fewer new staff and that the industrial outlook of the Eurozone had taken a turn for the worst during April. After failing to break above its upper trendline (blue downward sloping line) over the last few days as shown in the chart below, the pair finally plunged downwards. The events of the next two days are now critical in defining the future movements of the EURUSD. For example, if the ECB shy away from providing further monetary help to its suffering peripheral members then such an action will weaken the Euro. In contrast, a poor US jobs number on Friday will cause the EURUSD to surge higher as the prospects of further stimulus will then become greater. As increasing pressure on the Euro is more likely, a good opportunity to sell the pair will arise if price breaks below 1.3100.
The USD strengthen against the British pound yesterday as it benefited from its safe-haven status following the disappointing ADP labor report and poor European factory orders. The strength of the GBP seems now to be waning which could well be a consequence of the announcement made last week that the UK had officially entered a new recession. As the likelihood that the Bank of England may well have to reconsider its strong stance against further stimulus measures, the GBP could come under increasing pressure during May. Investors will be seeking further insights into how the BOE is viewing these recent developments when the bank releases its next inflation report later this month. With the significant prospects of the GBPUSD falling below its upper trendline, a good opportunity to sell this pair will arise if price can break below 1.6150.
As a result of the fundamental events that occurred yesterday, the AUDUSD plunged lower early yesterday by almost 60 pips hitting a low of 1.0280 before rallying and closing near 1.0330 as illustrated in the chart below. The performance of the AUD was also heavily influenced by the shock rate cut made by the Reserve Bank of Australia on Tuesday of 50 basis points. This effect also caused the AUDUSD to fall back below its upper trendline yesterday. With the 50MA (blue) and 100MA (green) lines being to converge as well as the value of the ADX trend strength indicator falling, there is a strong potential for this pair will weaken further. Consequently, a good opportunity to sell the AUDUSD will occur if price can plunge below 1.0290.
The CHF weaken substantially against the USD yesterday as shown in the chart below both because of the dollar benefiting from its safe-haven status and because of the looming threat that the Swiss National Bank has serious intentions to weaken the Swissie at any time. Consequently, the USDCHF surged yesterday by over 70 pips to a high of 0.9155 before retracting to 0.9130 at market close. The pair even managed to break back above its lower trendline and re-entered its previous trading channel. As investors will be paying close attention to any new moves that the SNB may make, the possibilities that the CHF will weaken further are very real. Consequently, a good opportunity to buy this pair will occur if price can break above 0.9195.
Gold dropped in value yesterday after weak U.S. private-sector jobs data caused it to fall for a second day in a row. Gold was subjected to new pressure as a result of the ADP employment report indicating that U.S. companies had employed the fewest number of new staff members during April that in the last seven months. This result boosted investors’ concerns about a potential slowdown in the US economic growth. Gold traders will now focus their attention on Friday’s release of the nonfarm payrolls data which will provide clues about future Fed policy concerning interest rates and additional quantitative easing. As expert consensus advises that gold is most likely to appreciate in value in the short term, a good buying position will arise if it can break above its 100-day moving average residing near $1,670 an ounce.
Silver dropped in value by 0.92% to close at $30.64 an ounce yesterday while platinum plunged by 0.51% to finish at $1,567.90 an ounce. Oil prices had a moderate drop yesterday following data demonstrating a rise in inventories as well as poor economic data from both sides of the Atlantic suppressing its demand. If this discouraging trend continues today then a good opportunity to sell oil will occur if price can break below $104.39 per barrel.
Yesterday, there was a spate of more corporate earnings releases. Kindred Healthcare, which specializes in the management of acute-care rehabilitation centers and hospitals, saw its shares appreciate by 3 percent after it released strong quarterly results beating market expectations. Green Mountain Coffee Roasters did not fare so well as its share value plunged by a massive 40% after it was forced to cut its full-year sales predictions. Energizer Holdings posted good quarterly profits surpassing the expectations of market analysts as a result of its household products benefiting from price increases.
Apple shares climbed during yesterday’s trading to finish up by 0.66% at $585.98. This company is rated as a strong BUY by market analysts. Consequently, a good opportunity to purchase Apple shares will occur if price can achieve a sustain break above $587.19.
Google had a good day yesterday with its shares rising by 0.47% to close at $607.26. As this company enjoys a strong BUY evaluation by market experts, a good opportunity to purchase Google will occur if price can break above its recent high of $614.23.