Traders Edge 7-17-12

The U.S. stock markets are likely to open higher following the positive results of the Spanish bond auction. The yields on the 10-year Spanish bonds, which were approaching the all important 7% rate, have fallen more than 10 basis points on speculation of a large bailout of the country's banks. Risk-on is back, at least for today.

Bernanke is slated to talk to Congress today and tomorrow to discuss monetary policy with the Senate Banking Committee. (can be watched live here- http://www.c-span.org/Events/Fed-Chairman-Goes-Before-Senate-Cmte-for-Monetary-Policy-Report/10737432369/) Traders eyes and ears will be watching the testimony to see if the Fed Chairman gives hints towards a QE3 program. It is our belief that a future QE program is almost assured, but that traders looking for an imminent money printing regime will be disappointed. Although the monetary statistics and the World economy have slowed, it is our belief that there is enough pockets of strength to keep the Fed on the sidelines. We think that any future QE3 program will be big and bold and will only occur when the economy and/or inflation expectations slow significantly.

The S&P 500 seems stuck in a trading range in the short-term, as traders weigh second quarter earnings (beginning in earnest this week) and monetary/political actions.

We continue to watch the UUP and FXE for any indication of a trend change in the forex markets.