12:30 pm EDT:  JPY weakness is USD strength, which is weighing on equities.  USD began the morning at fairly strong support, which is why we called for a range day despite the possibility of new contract highs in the ES.  So far, that is what has panned out, except the high was a few ticks shy of the potential reversal area of 1116.00 to 1117.00.  No Fed news regarding interest rates, but Bernanke speaks sometime tomorrow and could give the markets a surprise.  The ES has now reversed down to the lower end of the expected range (1102.25 to 1104.25).  If it holds, there could be an afternoon rally back to ~1112-13.

The Precise Take – ES consolidating gains at contract highs ahead of Employment Situation Friday

Leaders Analysis:  Gold is trading comfortably over 1200 and the EuroYen continues to advance up to strong resistance marked by its 20 and 200 day moving averages, with the 50 day sitting just above them.  It will be important to watch the reaction at these points, as a quick rejection will indicate aversion to the global risk trade.  The US Dollar has retreated to support and would likely need to break on a further equities rally.

Medium Term Analysis:    Treasuries and interest rates are edging into the spotlight again, with tomorrow’s 10 year and 30 year auction announcements.  And, though traders are still mainly looking ahead to Friday’s Unemployment Situation report, today’s Beige Book at 2:00 pm will offer a glimpse at what the FOMC is reading ahead of their meeting in two weeks.  The Fed recently announcement it would be conducting temporary open market operations (TOMO) to test triparty repos, which will eventually be used to balance excess reserves should inflation arise.  These are the first such TOMOs to occur since last December (they are used to add or drain liquidity), and with Philadelphia Fed Bank President Plosser’s hawkish remarks the other day on Fed tightening, the markets will be especially sensitive to interest rates.  Though we still favor another runup in equities, recall the skittishness with which they have behaved recently and be aware of where the next scare will likely come from.

Trading Today:  The overnight range was very tight and the ES is trading in the daily pivot/gap area.  We are expecting a range day and will play such unless and until…

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