Stocks, Commodities Trade Flat Overnight as Traders Await EU Pact
Stock Indices, gold and crude oil are trading relatively
flat overnight. Yesterdayâ€™s strong buying has been met with uncertainty
following the inability of the European Union to reach a loan guarantee
agreement with Greece.
Investors are taking a cautious approach ahead of said
announcement. The longer the EU delays the announcement, the more nervous
traders will become, thereby, forcing weaker longs out of the market. This
could lead to general weakness today.
Todayâ€™s focus will be on appetite for risk. Simply stated,
if the EU makes the announcement to guarantee Greece against sovereign default,
then look for an increase in demand for risk to send stocks, gold and crude oil
soaring. Otherwise, expect these markets to drift sideways-to-lower.
Treasury futures are up slightly.This could be a sign that traders are hedging
against a down move in risky assets.
All major currencies are down versus the U.S. Dollar
overnight after the European Union failed to deliver a resolution to the Greece
sovereign debt problem. Yesterday, currencies led by a rally in the Euro,
pressured the Dollar on hopes that the EU and Greece
would reach an agreement regarding loan guarantees to ensure Greece would not default on its
Early trading conditions suggest that traders are growing
impatient with the EU foot-dragging, but the markets could turn quickly at even
a hint of a resolution. Traders should expect unusual volatility and sudden
changes in direction as traders jockey for position ahead of this monumental
In the EUâ€™s defense, it is most likely crossing every â€śtâ€ť
and dotting every â€śiâ€ť because of the importance of this agreement. The EU has
to assure the global investing community that it is indeed a â€śunionâ€ť.
Reports last night highlighted that over 5 billion Pounds
have been bet on the short-side of the Euro.If a viable agreement is reached today, then look for these shorts to
begin covering positions. This could trigger a massive rise in the Euro.On the other hand, a failure to announce a
pact today will most likely weaken the Euro as bullish traders will become
nervous holding on to long positions. Any hesitation may also encourage hedge
funds and bearish traders to add to their massive short-positions.
If the European Union decides to guarantee Greeceâ€™s debt then look for trader
appetite for risk to skyrocket. This should trigger strong rallies in equities
and commodities. The Australian, New Zealand and Canadian Dollars
are likely to benefit the most over the short-run.
The March Swiss Franc is likely to rally should a pact be
announced today. A move by the EU to shore up Greeceâ€™s debt will take the
pressure off the Swiss National Bank to defend its currency against rapid appreciation
The March British Pound is likely to rally, but gains could
be limited as traders will refocus on the U.K. economy. In addition, some
traders are still concerned that the U.K.
budget deficit could trigger similar problems the Greece deficit is causing.
The March Japanese Yen is the best indicator as to how
investors feel about risk and should be watched closely. The Dollar has been
slowly rising versus the Yen the past three days, but not enough to assure
traders to take on risk again. The recent action resembles cautious optimism.
If the EU fails to announce that an agreement has been
reached with Greece,
then look for traders to focus on the testimony of Fed Chairman Bernanke for
direction. Today, Bernanke will testify before Congress.The main topic he will address will be
economic stimulus. He will most likely be asked about withdrawing economic
stimulus and to offer ideas about the Fedâ€™s exit strategy.
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