Rangey day

Risk aversion is seeping back into the market. The Dow now trades -80 (11:16 est) even in the absence of bad econ data. European trading were tepid as well.

Even last night's positive close in the US stock markets were due to defensive stocks moving higher e.g. consumer staples. Breadth of the move was poor as well, meaning the upmove appears weak.

I heard that speculative accounts have been selling risk assets recently so as to lock in profits ahead of the US Q2 earnings season. There're risks of poorer performance as compared with Q1.

Alcoa, the belweather commodities firm will report after the bell on Wed 8 Jul.

As one analyst put it, the market is likely to react more strongly to bad news now than good news. I feel that in this non trending environment, this is likely to happen as well.

Some TA analysts say 890 is the neckline support for the head and shoulders pattern formation for S&P 500. If broken, prepare for another surge downwards.

In FX, the majors traded rangey against the dollar in spite of the decline in US stocks and the looming sense of risk aversion.

This is because tonight, the Treasury will sell about USD 30 bn worth of treasuries, worsening the fiscal position of the US and pressuring the dollar. The market has been harping on about the increased supply of treasuries but auctions (demand) have been good.

Yesterday the Treasury successfully sold USD 10 bn of treasuries including TIPS with good bid to cover ratio.

Central banks (through the way of indirect bids) have lent support to treasuries. It makes sense because where else can they park their dollars. The dollar and treasury market liquidity comes at a premium.

In contrast, the ECB has been very prudent with their monetary policy and I feel this is the main reason the EURUSD is supported. Members like Weber, Stark and Noyer have stated that 1)inflation is not a concern 2) no additional asset purchases are needed now - which will help the fiscal position of the EZ.

Today, the EUR tried to make progress against the dollar but to no avail given the poor risk appetite.

However, in the coming few days there could be good opportunities to long the EURUSD for a medium term bet because monetary policy is what will drive prices, rather than the risk aversion flows.