24 August Daily Market Review
Daily Market Analysis by OptionRally
Financial Market Overview
New investor optimism lost some of its shine yesterday as the stock markets retreated amid concerns over the global economic recovery and lackluster Fed comments. Data released from the Eurozone on Thursday disclosed that its PMI survey posted a seventh consecutive month of contraction which strongly indicates that the currency bloc is on an unstoppable path into recession. In addition, a slowdown in business activity within Germany provided further evidence that the adverse impacts of the European debt crisis were spreading from peripheral members into core states. There was also gloomy news issued from China yesterday when its PMI figures revealed that its manufacturing section had shrunk to its lowest level in nine months amid rising inventory stocks and declining new export orders.
The USA also published a spate of economic indicators on Thursday producing a mixed reaction from investors. Signs that the US labor market is still struggling surfaced after data demonstrated that the number of Americans filing for unemployment benefits rose during the preceding week. On a more positive note, the US manufacturing sector grew during August despite further deterioration in the global economic recovery. After the release of the FOMC minutes on Wednesday boosted expectations of forthcoming Fed stimulus actions, James Bullard, a non-voting member of the FOMC, dampened enthusiasm yesterday during a television interview when he stated that the minutes were now stale as better-than-expected US economic data had been published since the FOMC meeting took place at the start of August. Thursday’s developments had the net effect of forcing the markets lower as typified by the Dow Jones Index plunging by 115 points.
With China, USA and the Eurozone actively toying with the ideas of launching new bouts of stimulus measures, the Euro continued to strengthen against the US dollar on Thursday. The EURUSD rose by over 40 pips to register its highest value at 1.2587 since the last week in June. The pair then undertook a moderate retraction later in the day to close at 1.2561. The news arising from Europe that Spain was in active talks with the Eurozone in order to negotiate international aid was the prime catalyst for the Euro bullish movement yesterday. In addition, German and French authorities voiced their intentions to present a united front against Greece in a series of debt meetings which are scheduled over the next three days. As many experts are predicting that the Euro will extend its gains against the USD in the short-term, buy the pair if price breaks above 1.2588.
The British pound attempted to consolidate its weekly gains against the USD on Thursday after the GBPUSD initially climbed to a three month high located at 1.5911. However, after the pair hit stiff resistance it then retracted from overbought conditions by plunging over 40 pips to its closing price of 1.5857. Currency analysts are now advising, that as long as the key support level at 1.5808 remains intact, they predict that the GBPUSD will recommence its bullish trend to test its next key resistance levels at 1.5947 and 1.5996. With dynamic stimulus talk in the air, increasing expectations that the global central banks will soon instigate additional quantitative easing also favor riskier assets, such as the British pound, at the expense of safe-havens, such as the USD. With a bullish sentiment exerting its influence over the pair, buy the GBPUSD if price can surge above 1.5873.
The Aussie came under pressure yesterday from the USD after speculation increased that the central bank of Australian may soon need to initiate further stimulus measures. Such an action would effectively devalue and weaken the AUD. In addition, increasing tension in the Middle East weighed on the Aussie as trouble in that region will have an adverse influence on the economies of Australia and its main exporting partner, China. As such, the AUDUSD broke beneath its psychologically important 1.0500 level by plunging over 80 pips to its closing price at 1.0440. Analysts are now forecasting that the Aussie is prone to further weakness against the USD in the short-term to the point that it could even test its key support level at 1.0359. Consequently, with a bearish bias gaining precedence over the AUDUSD, consider selling the pair if price slumps beneath 1.0421.
The Swissie strengthened against the US dollar on Thursday for the fourth consecutive day as the USD was undermined by fervent stimulus talk and the release of a mixed bag of US economic indicators. The USDCHF plummeted by over 40 pips to a daily low located at 0.9537 before rallying by nearly 20 pips to close at 0.9558. The increasing prospects that Spain is on the verge of submitting a full-blown request for international aid from the Eurozone will provide a substantial boost to the Euro, if such an action does come to fruition. As the movements of the Swiss Franc are heavily correlated to those of the single currency, the CHF is also expected, as a consequence, to extend its gains against the US dollar in the short term. As such, with the pair presently subjected to a bearish sentiment, consider selling the USDCHF if its price slips below 0.9539.
The price of gold had a field day on Thursday by hitting its highest level since the start of May. The precious metal has a proven track record of always appreciating in value whenever the global central banks instigate new bouts of stimulus measures. With deteriorations in the global economic recovery and the European debt crisis together with anemic US economic growth, the central banks of the USA, China and the Eurozone are now on the verge of instigating additional quantitative easing. As such, gold is subsequently well positioned to extensively extend its recent bullish trend and increase its gains significantly over the coming weeks. With a strong bullish sentiment dominating the gold markets, buy this commodity if its price soars above $1,674.75 per oz.
Concerns about Middle Eastern tension disrupting supplies and dimming stimulus expectations caused the price of oil to fall yesterday. With a bullish bias still prevailing, buy oil it if its price breaks above $97.54 per barrel.
A number of major US Steel companies witnessed the value of their shares decline on Thursday after a market analyst company downgraded the US Steel sector citing imminent drops in the price of the metal as its prime reason for doing so. This evaluation assumes that lower international steel prices will drag the higher US domestic ones down in the short-term. The shares of US Steel plunged on 3.6% while those of AK Steel fell by 2.7% during yesterday’s session.
The row between NASDAQ and UBS Securities intensified on Thursday. UBS complained that NASDAQ’s compensation plan of $62 million was totally inadequate to address the magnitude of its unprecedented failures in organizing the recent Facebook IPO as it lost over $350 million alone.
The markets slumped yesterday amid dimming stimulus prospects and mixed US economic releases dragging the shares of both Apple and Google lower with those of the former slumping by 0.93% to $662.63 while those of the latter slipped by 0.06% to $676.80. With both companies displaying stern resilience, buy Google if its share price breaks above $677.84 and purchase Apple if its share price climbs higher than $663.32.