Trading in markets has become very wavering. Given that the markets are focused so much on fear at the moment that every bit of good news produces a small comeback in risk and a small dismal data makes the bears active. Yesterday, both the bulls and the bears dominated the markets, with bonds auctions proving to be a success, while even equities proved to be a winner. In the early US session, bulls proved to be winners, but in the late US trading session bears took charge in leading the equities to pare in the strong gains, but still managing to register some gains. A slight increase in investor risk appetite also lightly pressured the gold market.
Safe heaven trades are slightly strong this morning. A trend that was set in motion in the late US trading session after the Beige Book sited a slowing economy. US stock futures are roughly flat to a tinge lower, down 6 points. US stock futures are looking directionless, though there's a few pieces of economic data coming which may help sketch out a path for markets. However, it's a day for both the bulls and the bears once again. The VIX moved slightly to close Wednesday at 23.25, slightly lower from the 23.8 Tuesday, giving no clear direction fro the markets.
Though the futures are trading in red, some snap back buying may pull the futures in green, before the usual trading in the US equities begins. The US is due to release the initial jobless claims, trade balance and the crude oil inventories data. But the market moving factor will be the initial jobless claims. Moreover, the US is going to witness another round of bond auction. Today, $13 billion in 30-year bonds will be sold. After a bout of successful bond auction witnessed this week, it will be a sight to watch once again. If the economic data results in an additional baton of deteriorating economic situation equities will be seen in red, while the bonds would prove to be a winner.
The US Treasury Department sold $21 billion in 10-year notes on Wednesday at a yield of 2.67%, the lowest since January 2009. However, the yields on Wednesday, edged higher to 2.66% from 2.61 Tuesday, on the back of risk appetite which was seen gaining traction in the early European session after Portuguese government on Wednesday sold 661 million euros ($839 million) of three-year debt and 378 million euros of 10-year bonds. Europe has shown that it can still tap the capital markets and sell debt, and as long as that is possible, investors will take some money out of the 'safe haven' trade, trying to find some yield in the process.
However, the cost of procuring finance continued to pose worries. The three-year debt saw an average yield of 4.086%, up from 3.597% in an auction of the same issue in June. But once again the shortcomings were sidelined by the traders, trying to jump in risky assets by the small fact that Portuguese witnessed successful bond auction, but only at expense of creating one more debt burden for the future. The 10-year bonds saw an average yield of 5.973%, reports said, up from 4.171% in a March sale. Moreover, the successful bond auction overshadowed the downward revision of the Greece GDP. Greek GDP contracted by a downwardly revised 1.8% in Q2 2010. The agency previously estimated that GDP contracted by 1.5%. A sign that the austerity measures have started to take a toll on to the PIIGS economy. Moreover, the Greece CDS spreads, which witnessed some calm in the beginning of the week, is once gain ready to breach the 900 basis point level.
But in the current environment, the market players just want to cash in gains on every small news that comes in. In wake of all this market moving factors, the Euro/USD pair was the one, which witnessed a sharp movement. EUR/USD made a Higher High and High Low and closed slightly bullish. Wednesday started the trading session, with bearish movements in the pair, Euro/USD was seen hovering 1.2690 and 1.2730, but as soon as the Greece GDP figures hit the market, the pair reached a low of 1.2669. Then after hitting a low of 1.2669, the calming data of German industrial production and successful Portuguese bond auction changed the picture for the pair. Euro /USD pair hit a high of 1.2721, after which it sustained its bullish trend. Both the positive European equities market and the gains in the US equities also supported the pair dragging it to a high of 1.2763. The Dow Jones Industrial Average rose 46.32 points, or 0.5%, to end at 10,387.01, about 40 points shy of returning to positive for 2010.
In the late trading session, Euro/USD gave away some of its gain, as the disappointing US data, both the Beige book and the consumer credit figures, which fell for sixth straight month in July, with total credit falling 1.75% to $2.42 trillion, took away some gains from the risky assets, as investors were seen moving back to the safe heaven asset. After reaching a the days high the USD pared its losses, with the pair closing at 1.2728.
Currently quoting at 1.2696, lower from the opening quote of 1.2727, the pair is looking slightly bearish for now. But once again there will be huge volatility to be witnessed in the pair. On the tap are bond auctions in Euro Zone, which may support the pair in early European session. Further, some more economic data is also to be released in the day ahead on both the US and Euro Zone front, which will sketch the picture for the pair.
A dismal data from US front, can support the US due to safe heaven demand, or can also support the Euro. But there are possibilities that the US bond auction will support the USD in late US trading session. A kind of uncertainty lies ahead for the FX market. But going through the fundamentals, the pair looks bullish for the day on the whole. The pair will be seen hovering between the 1.2640 and 1.2750 levels.
The US dollar index is currently quoting at 82.670, higher from the opening price of 82.595 and has already reached a high of 82.670 and a low of 82.495. Currently trading in green, the index will be seen hovering between the red and the green territory. But the support lies in the 82 area. All in all, it looks likely a replica of the yesterday's trading.