At the end of last week, the sentiment among investors took a hit as the Spanish region of Valencia requested financial help from the central government. Market participants sold higher-yielding stocks on the news after the move sparked talks of a possible break-out of the Eurozone. On Monday, the selling pressure intensified as news that another region, Murcia, might need help hit the wires. Yields on the Spanish benchmark ten-year bond sharply increased, hitting 7.57%. At the same time the cost of insuring against the default of the Spanish government jumped to record highs. Credit-default swaps on Spain’s debt securities climbed 28.5 basis points to 634. On the other side of the Atlantic, the yield on the ten-year U.S. bond dropped to its lowest level on record – 1.3960%.
Tuesday did not differ significantly from Monday. Stocks continued their decline as Moody’s decided to put the credit rating of Germany, the Netherlands and Luxemburg on a watch for a possible downgrade. Manufacturing data for the Eurozone also came in much worse than expected with only the French service sector moving from contraction to expansion. By contrast, the PMI number for German service sector dropped below 50 for the first time since July 2009. The manufacturing data for the U.S. economy also disappointed, but at least it still expanded in June. One of the few bright spots was the Canadian retail sector. Although the retail sales figures for the Canadian economy were worse than expected, the core retail sales rose as much as 0.5%. Analysts were expecting a much more modest increase of 0.1%.
On Wednesday, we finally saw a push on the upside despite the battery of bad news, which continued to pour from Europe. First the German business sentiment declined to 103.3, which is its lowest level since June 2010. And second, the British preliminary GDP figures were very disappointing. Analysts were expecting the economy to contract by 0.2%, but it contracted 0.7% instead. Market participants rushed to buy gilts and the yields dropped along the curve. The yield on the two-year note even marked an all-time low of 0.047%. After the release of this bad news investors speculated that Bank of England might boost its balance sheet even further after it decided to buy additional 50 billion pound worth of assets. New home sales figures for the U.S. economy also came in worse than expected, but this prompted traders to buy stocks as they grew increasingly confident that the Federal Reserve will have to use more monetary stimulus measures to boost the largest economy in the world.
Thursday, was by far the best day for stocks as the ECB President Mario Draghi said that the central bank will use all tools at its disposal to protect the Eurozone from collapsing. At the same time unemployment claims surprisingly declined to a seasonally adjusted reading of 353K. Durable goods orders rose to 1.6%, but the increase came mainly in the form of aircraft. On the negative side, core durable orders, which exclude transportation, declined 1.1%, a reading much worse than the 0.1% increase market participants were expecting. Pending home sales added to the worries of the sluggish recovery of the housing market, dropping 1.4%. Among earnings, Apple slipped as the tech giant released profits, which were much worse than expected.
On Friday, markets continued to move higher despite the fact that Facebook and Starbucks released disappointing earnings. GDP figures were what all investors were eyeing and they landed on analysts’ expectations. Most traders were preparing for another piece of bad data, so they rushed to buy risky assets on the news. Financials gained as Barclays reported profits that topped market expectations.
The Dow is on its way to finish the week higher after declining in the first couple of trading days. The index traded as low as 12,522.68 at one point, but it is now steadily moving to higher and higher grounds. The blue chip even touched fresh new highs for the period after May 8th. Support in the benchmark is provided by the 25-period and the 50-period moving averages around 12,780. Resistance, on the other hand, stands at the psychologically important 13,000 level. Oscillators are all trending higher with the relative strength index at 67 and the stochastic already in overbought territory, standing at 90. The MACD had just crossed the key 0 level and is currently issuing buy signals.
Gold had an excellent week. The precious metal trended higher almost all the time, pushing above its 25-period, its 50-period and its 200-period moving averages. The index even managed to penetrate above the psychologically important 1600 level and to touch levels not seen since mid-June. Support in the bullion is provided by the 1600 mark, which was where the previous resistance stood. Resistance, on the other hand, is provided by the intermediate highs of 1630, which we reached on June 19th. Oscillators are all trending higher with the relative strength index moving close to the upper band of its range and the stochastic already in overbought territory, standing in 89. The MACD is well above the key 0 level, approaching the highs it touched in the beginning of July.
The currency pair started the week with a sharp drop, which briefly sent it below the psychologically significant 78.00 level. The bulls, however, regained their strength in Monday afternoon and tried to push the USD/JPY back up. Initially they managed to do so, but later the bears resumed the market. For the rest of the week bulls and bears were switching the initiative between each other and, as a result, the yen moved in tight range for the better part of the week. On Thursday, however, the USD/JPY pushed above its 25-period moving average and today the currency pair is extending its gain, currently trading above its 50-period moving average at 78.45. Support, as we mentioned, is provided by the 78.00 level, while resistance stands at the June lows of 78.60. Oscillators are all moving higher with the relative strength index at 58 and the stochastic already in overbought territory, standing at 94. The MACD is approaching the key 0 level, but it still has some room to go.
The week started pretty well for the USD/CHF as the currency pair marked a fresh new high of 0.9951 on Monday. On Tuesday, the sentiment among investors took a serious hit, which sent the USD/CHF even higher to levels of 0.997, which is the currency pair’s highest rate since February 2010. But, in the middle of the week, the bulls began to give way to bears, which suddenly became active when the Franc moved closer and closer to parity with the U.S. dollar. After taking the initiative from the bulls, the bears didn’t lose it in the next couple of days, completely dominating the market. They even grew increasingly strong as the ECB President Mario Draghi announced that the central bank will do all that is necessary to keep the Eurozone from collapsing. Today we were having a very calm session, in which the Franc traded in a very tight range, but then the bears took the initiative from the bears once again and sent the USD/CHF to fresh new lows for the period after July 5th. The next support level stands at the 200-period moving average at 0.9686, while resistance is provided by the mid-July lows around 0.9775.
On Monday, the Kiwi continued adding to the losses it had posted on last week Friday and the currency finished the day close to the session lows after starting at the highs. After touching lows of 0.7805 on Tuesday, the New Zealand’s currency tried to finally make a decisive push on the upside and managed to do so. The buying in the NZDUSD started in the afternoon part of the Tuesday session and intensified towards its end when the figures for the New Zealand’s trade balance were announced. Wednesday was a big day for the New Zealand economy in terms of economic data. The Reserve Bank of New Zealand was scheduled to release its official cash rate, which the bank decided to retain at the record low of 2.50%. Moreover, the central bank gave no indications that it intends to lower this rate further at least in the near future. The Kiwi rose on the announcement and on the improved sentiment among investors, who started speculating that the bad data coming for the U.S. economy will prompt the Federal Reserve to use more stimulus measures. Today the New Zealand dollar continues to move higher and it is currently standing just off of the session highs of 0.8083. This is the currency pair’s highest rate since early February. Oscillators are all trending up with the relative strength index at 72 and the stochastic at 95. The MACD is well above the key 0 level and is currently approaching the tops of early July.
The GBP/USD declined in the first half of the week as the demand for higher-yielding currencies decreased and market participants moved to more secure ones, such as the U.S. dollar. The sell-off lost its momentum after Wednesday even though the figures for the U.K. GDP came in much worse than expected. Yesterday the GBP/USD moved sharply higher on the comments of the ECB President Mario Draghi on the current situation. The currency pair moved above its 25-period, its 50-period and its 200-period moving averages and ended the day close to the session highs. Today the pound continues to move higher, currently standing at 1.5707 after touching fresh new highs of 1.5766 for the month. Oscillators are all trending higher with the relative strength index at 70 and the stochastic already in overbought territory, standing at 84. The MACD is trending up, approaching the highs it touched last week.
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.