May 8 Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
French and Greek election results disclosed late Sunday stunned investors after voters in both countries clearly rejected the Eurozone’s present austerity policies. This development had the effect of increasing the nervousness in the markets which resulted in stocks prices and the Euro tumbling Sunday evening before rallying during Monday’s trading. In particular, the political situation in Greece degenerated into turmoil after the two main parties, who are supportive of EU/IMF bailouts, lost control of parliament following a significant boost in support for both the far-right and far-left fractions. As a result, many investors are now seriously considering whether Greece even has a future as a Eurozone member. With the New Democracy party securing the most votes, its leader, Antonis Samaras, has three days to form a coalition government whose prime objectives must be to attempt to avert a Greek bankruptcy and remain a member of the Eurozone. Yesterday, Samaras issued tough statements proposing a renegotiation of the present bailout plan.
The dramatic events in Greece eclipsed France’s presidential election which resulted in Socialist Francois Hollande replacing former leader Nicolas Sarkozy. As Hollande campaigned on a ticket to alter the present policy of the Eurozone so that it has as a greater bias towards growth as opposed to austerity, worried German Chancellor Angela Merkel issued a statement following his victory vowing to work with him in order to sustain good German-French cooperation. Struggling peripheral members will be more than happy about Hollande’s success as they have now gained a new ally to help them control Merkel’s preference for tough austerity measures which have only intensified their massive debt issues. For example, Italian Prime Minister, Mario Monti, made a notable action to congratulate Hollande as soon as possible by emphasizing his willingness to support joint efforts in achieving more growth oriented policies.
The EURUSD finally broke below its lower trendline, as a result of French and Greek voters rejecting the current austerity policies of the Eurozone. This price action was the first time since mid-January that the pair was managed to trade outside its ever-compressing 1.3000 – 1.3500 range. The pair plunged by over 130 pips hitting a low of 1.2954 during Sunday night after the currency markets had re-opened. The EURUSD did achieve a rally yesterday to close at 1.3051. However, despite this bounce upwards the Euro should still experience further pressure this week as the new political uncertainties in Europe will cause investors to worry about a prompt resolution of the current debt crisis. Consequently, a good opportunity to open a PUT currency option with the EURUSD as the underlying asset will arise if price can break below 1.2980.
This pair dropped deeper within its previous bull channel during Sunday evening as a result of the new political uncertainties arising from the results of the French and Greek elections held over the weekend. The British pound did, however, manage to rally yesterday in unison with the recovery in stocks. Despite this retraction, the bias must still be to the downside. This is because of the increasing tensions, now underpinning the European debt crisis, will start to unravel as this week progresses and will help strengthen the USD. In addition, the impact of the new UK recession should also begin to weigh on the GBP. Consequently, a good opportunity to open a PUT currency option with the GBPUSD as the underlying asset will occur if price can achieve a sustain break below 1.6115.
The AUD took a tumble during Sunday evening against the USD by falling nearly 150 pips to a low of 1.0109 as a result of the electoral developments in Greece and France. The pair managed to generate a partial recovery of nearly 80 pips yesterday as it tracked share prices higher. However, with the AUDUSD firmly back inside its previous bear channel, the directional emphasize must still be downwards. This is because the fostering unrest in Europe will help strengthen the US dollar. In addition, the Australian government is actively introducing new stimulus measures to help encourage growth which will have the overall effect of weakening the AUD. Consequently, a good opportunity to sell this pair will arise if price breaks below 1.0120.
The USDCHF surged higher Sunday evening after the disclosure of the French and Greek election results breaking well above its upper trendline as shown in the chart below. The pair climbed by nearly 90 pips to 1.9270 before retracting downwards yesterday as the USD weakened share prices improved. This recovery could just be short-lived though because the directional bias of the USDCHF is still upwards. This is because the USD will strength if the European debt crisis continues to deteriorate. In addition, investors will be nervously awaiting any actions from the Swiss National Bank to fulfill its promises to weaken the Swissie at any moment. Consequently, a good opportunity to buy this pair will arise if price achieves a firm break above 0.9265.
Gold fell yesterday as a result of the strong anti-austerity emotions emulating from the election results in Greece and France that elevated worries about whether Europe can contain its intensifying debt crisis. In particular, Greek voters strongly vetoed the current bailout policies that, although have prevented the country from exiting the Eurozone and avoiding bankruptcy, have caused great hardships for the populace. Although these events were very dramatic, analysts are currently advising that gold is trading in a state of limbo inside a well-defined range. However, they proceeded to also state that the price of gold could begin to climb following an initial drop towards $1600.00 per oz. Consequently, a good sell opportunity would occur if price drops below $1,627.85.
Silver also plunged by 1.02% to finish trading at $30.12 per ounce yesterday while platinum completed the day down by 0.39% at $1,533.30 an ounce. As a direct result of yesterday’s developments, oil plummeted to its January low. Consequently, a PUT option to sell oil could be opened if price breaks below its recent low at $97.51.
Yesterday, Facebook commenced its IPO roadshow in New York which is intended to attract about $10.6 billion which will help the company acquire a market value approaching that of Amazon. Analysts predict that the highly awaited IPO will entice many supportive investors despite significant worries concerning both Facebook’s 27 year old CEO Mark Zuckerberg’s majority control and the company’s longer-term growth prospects. This social network firm is anticipated to be valued between $77 million and $96 billion if it can secure an IPO range of $28 to $35 per share this coming Thursday.
Cognizant Technology Solutions, the Information technology services provider, advised the markets on Monday that it was lowering its earnings predictions for 2012, which was the first time in four years that it had to consider such a step. After the company identified poor US demand from its financial services clients as the prime reason for this move, its shares dropped by almost 20%.
Apple shares rose steadily yesterday after stocks rallied in general following their significant drop on Sunday. However, with the European debt problem increasing, there is a good possibility that Apple shares will weaken further in coming days. As such a good selling opportunity will occur if price breaks below $561.50. As Google’s shares face similar pressures, a good SELL will arise if its price falls below $595.00.