U.S. stock markets are trading higher ahead of the opening after hitting oversold levels and bottoming in Asia. Traders took the markets lower overnight in a follow-through break following Tuesday’s sell-off, but after reassessing the financial situation in Greece and the general lack of fresh sellers, turned the markets around on bottom-picking and short-covering.
Traders are still cautious about being long at current levels due to value issues and worries that the financial crisis in Europe will escalate further. Nonetheless, investors feel that yesterday’s break may have been overdone to the downside and too much of a knee-jerk reaction to the news of the S&P downgrade of Greece and Portugal’s credit ratings. This type of reaction usually generates a sizeable retracement. If traders still feel that they want to take risk off the table, then renewed selling pressure is likely to occur after a 50% rebound of Tuesday’s sell-off.
Technically, the June E-mini S&P 500 turned the main trend down on the daily chart on Tuesday signaling the start of a decline which could take this market to a major 50% level at 1134.00.
U.S. equity markets broke sharply lower shortly before the mid-session after the S&P Corp. cuts its debt ratings for Greece and Portugal. The move signaled that the situation in Euro is worsening, thereby slashing demand for higher risk assets.
June Treasury Bonds and Treasury Notes soared to the upside on Wednesday following the stock market plunge. Yields fell hard and fast as traders bought up Treasuries in a flight to safety rally. The action in the T-Bonds was fast and furious. Upside momentum was strong enough to pierce a key .618 retracement price at 118’06 as well as an old top at 118’12.
Overnight, T-Bonds are breaking as tensions eased in the stock market. Traders are taking profits after Wednesday’s huge rally and taking a few steps back to reassess the weakness in the stock market and the credit woes in Europe.
The weaker Dollar and stronger Euro are helping to support June Gold and June Crude Oil this morning. Gold is benefiting from both a weak Dollar and fears of a collapse of the Euro. Traders are talking long hedge positions in gold as protection against the possible demise of the Euro. The charts indicate that once the $1170.70 barrier is penetrated that $1200 gold may not be far behind.
June Crude Oil plunged sharply lower on Wednesday on the prospect of lower energy prices due to the lack of demand for higher yielding assets. Traders are also beginning to believe that a collapse in the Euro Zone economy will lead to a drop in demand for crude oil. Profit-taking and a reassessment of the financial crisis in Greece is helping to support crude oil prices this morning.
The U.S. Dollar is giving back some of its gains overnight. The rebound in the Euro and other commodity-linked assets is helping to weaken the Greenback. Wednesday’s hard break in the Euro may be attracting some bottom pickers but most traders still believe the Euro will remain soft.
Stronger equity markets and renewed demand for higher yielding assets is helping to support the Australian Dollar, New Zealand Dollar and Canadian Dollar. In addition, traders are buying the Japanese Yen in renewed interest in the carry trade.
Today could be a volatile trading session due to the developing situation in Greece and the Fed’s FOMC meeting.
The Fed is expected to leave interest rates unchanged, but traders will be focusing on the language in the policy statement. Traders will be watching to see if the Fed changes its dovish tone toward interest rates particularly its use of the phrase “extended period” when it talks about how long interest rates are expected to remain low. 
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