May 4 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
Concerns that the recovery in the US labor market may be stalling were partially eased yesterday after a report showed that the number of new claims for jobless benefit fell by the largest weekly amount in nearly one year. In detail, the Labor Department stated on Thursday that the initial claims for state unemployment benefits declined by an unexpected 27,000 to a seasonally modified 365,000. This result easily surpassed the market expectation for a drop to just 380,000 and was the largest weekly drop in claims since early May 2011. Other data released yesterday, however, did not support such as rosy picture because it advised that employment in the US service sector weakened during April falling to its lowest level since December, This report demonstrated that although U.S. companies were still hiring, they were not doing so as quickly as they did during the earlier months of this year. The Institute for Supply Management informed that its services employment gauge dropped from 56.7 to 54.2.
As a result of the above events, global stocks plunged during Thursday’s trading as the additional release of poor retail sales data also helped to defuse optimism before today’s highly awaited April non-farm payroll figure. European Central Bank chief Mario Draghi presented a more optimistic evaluation of the Eurozone’s current economic situation than most analysts were anticipating yesterday which had the effect of reducing the possibilities of additional monetary easing. This development immediately caused the Euro to appreciate against the dollar by helping it to climb from a two-week low. After the ECB announced early Thursday morning that it was keeping its interest rates on hold at 1%, Draghi also advised the European economy should show signs of recovery as this year progressing although it would be still prone to downside risks. He further stated that inflation was expected to hover above 2 percent this year.
The good US Labor Department report helped support the USD as it reduced the prospect of further stimulus measures. In contrast, Draghi’s remarks about continuous ECB action to assist peripheral countries provided a boost for the EURO. Although this contest appeared eventuality to be a dead-heat, it was not. This is because the Euro should have benefited much more from the Draghi comments than the paltry 35 pips boost it initially achieved. The fact that the single currency failed to do so demonstrates the sheer pressure that it is under as a result of European debt contagion. The fate of the Euro now rests heavily on today’s release of the US non-farm payrolls. If the figure hits or exceeds expectations then the USD will strengthen considerably forcing the EURUSD to plunge. As such, a good selling opportunity will occur if price breaks below 1.3095.
GBPUSD has undergone a significant fundamental change this week as it has now almost retracted back inside its previous bull channel. The British Pound has enjoyed a run of strength since late February as a direct consequence of the Bank of England advising that it was not considering any further quantitative easing. However, this situation may now have all changed after the UK regressed into recession which could imply that the GBP has had its day in the sun. If the non-farm payrolls do not disappoint today, then the downward pressure on the GBP could receive an additional boost as the prospects of further devaluation of the dollar, as a result of new stimulus, will diminish. Consequently, a good opportunity to sell the GBPUSD will arise if price can break below 1.6130.
The AUD took another hit yesterday by firmly dropping back into its previous bear channel. The Australian dollar experienced a bigger drop against the dollar compared to other major currencies because of the unexpected larger-than-expected interest rate cut made by the Reserve Bank of Australia (RBA) earlier this week. The AUDUSD had been fallen continuously since early March because Australia businesses were suffering from the adverse effects generated by the current slowdown in the Chinese economy and the European debt crisis. The RBA instigated a larger interest rate cut in an attempt to counter this process. As the full effects have not been felt yet, the AUDUSD is very likely to experience further weakness in coming weeks. As such, a good selling opportunity will occur if price can break below 1.0225.
The USDCHF closed very close to its opening value at 0.9135 yesterday after achieving a high of 0.9172 and a low of 0.9113. The volatility generated by the same two events experienced by the EURUSD produced the Doji Candlestick. However, a clear shift in the fundamentals that drive this pair has occurred this week which is demonstrated by price ascending back above its lower trendline (black upward sloping line). This action has been caused by the Swiss National Bank proclaiming that the current strength of the Swissie was hurting the economy of Switzerland. Consequently, the bank advised the markets that it plans to instigate corrective action at any time. This development has made investors nervous about supporting the CHF. Consequently, a good opportunity to buy the USDCHF will occur if price can achieve a sustain break above 0.9160.
Gold plunged by a full 1% yesterday achieving its largest one-day fall in a month as a result of a significant drop in oil prices and the release of poor U.S. service-sector data. This development occurred after data postings demonstrated that the employment gauge hit its lowest level since December and that the ISM services index declined to 53.5 in April. Following a recent sequence of better-than-expected U.S. economic postings, the weak ISM data is not likely to influence the Fed concerning its future considerations of further quantitative easing. Consequently, many gold speculators reduced their bullish approach to gold purchasing yesterday in anticipation of the important release of the US non-farm payrolls today. Gold has now fallen $125 since late February when Bernanke made no reference for the need for further stimulus measures. Consequently, if this trend continues today a good opportunity to sell this metal will be if price drops below $1632.38.
Silver fell yesterday by 2.27% closing at $30.01 per oz. while platinum plunged down by 2.02% finishing at $1,536.30 per oz. Oil prices tumbled on Thursday after OPEC stressed that it was very concerned about the influences of high prices on demand. The disappointing economic postings release yesterday also had an adverse effect of oil prices. Consequently, a good opportunity to sell oil will be if it breaks below its recent low at $101.82.
LinkedIn posted a revenue report yesterday that beat market expectations as a result of achieving significant growth in its services to assist firms in employing new staff. LinkedIn also made a declaration that it had purchased SlideShare, a content sharing company, for $118.75 million using a combination of stock and cash. The company registered a Q1 rise of 101% to $188.5 million which easily surpassed the market expectation of $178.58 million. As a result, LinkedIn’s shares climbed by 8.7% yesterday. Valeant Pharmaceuticals International’s shares collapsed yesterday after allegations were made by an undisclosed number of market analysts who triggered concerns about a recent earnings prediction that instigated a substantial increase in the Canadian drug company’s stock.
Apple shares decline steadily yesterday although they are now bouncing against the floor of a recent bull trend. With the company still possessing a strong buy status, a good opportunity to open a CALL stock option would be if price can break above its recent high of $585.62. Google’s shares enjoyed another good day yesterday by rising by 0.86% to achieve a closing value of $612.50. As the company is viewed as an excellent buy by market analysts, a good opportunity to open a CALL option would be if price penetrates above its recent high at $614.37.