Unless there's a big surprise in jobless claims, jittery markets will keep their focus on the euro and bank reform Thursday.
"It's funny how fx can drive the boat sometimes, and today basically the euro is still on the outs," said Brian Dolan of Forex.com.
The euro tumbled to a fresh 4-year low, but then rebounded Wednesday on speculation the European Central Bank would intervene to prop it up. There was also market talk later in the day that the Bank of Switzerland already had.
The dollar lost 1.4 percent against the euro, which was trading at $1.2385 late in the day. "I do think the rebound is potentially significant. I've been looking at $1.21/$1.22 as a short-term bottom," said Dolan, noting the euro has tested that zone twice.
What to Watch
Weekly jobless claims are reported at 8:30 a.m. The Philadelphia Fed survey and leading indicators are reported at 10 a.m.
"On the jobless claims, anything in the 430,000 to 440,000 range would not be surprising," said Diane Swonk, chief economist at Mesirow Financial. "I think the jobless claims are not as low as we'd like them to be right now because what we're seeing is people who have run out of severance are now applying for unemployment insurance."
"Many people who were white collar workers, who had a severance did not immediately apply, and that seemed to be some of the elevation in the numbers that we've seen, even though they've come off the highs we saw in that Easter week," she said.
The timing of a Senate vote on regulatory reform legislation. expected for late Thursday, became more uncertain after Wednesday's market close. The Senate, in a cloture vote, failed to reach agreement to end debate on the bill. Bank stocks including Bank of America , Citigroup and JPMorgan Chase had rebounded during the trading day on speculation the bill would not carry some of the more painful new rules for the industry, but what's in the bill is still unclear.
"It's literally unpredictable," said one trader about the legislation's content. "I do think when the Senate approves the bill, there will be a relief rally."
Germany and Greece will remain in the spotlight Thursday. Germany sparked a global equities sell off with its move Tuesday to ban naked short-selling of Euro zone sovereign debt and major German bank stocks. The move was not followed by other European countries Wednesday and was widely seen as regulators playing to internal German politics. However, the fact Germany moved alone continued to spur concern about euro zone unity.
Greece Thursday is expected to face a major general strike in Athens.
The Dow Thursday fell 66 points to 10,444, but not after a day of gyrations that took it down as much as 186 points. The S&P 500, off 5, at 1115, briefly fell through its 200-day moving average of 1102.
Traders say developments in Europe, financial regulatory reform, and a growing anxiety about China's growth kept stocks under pressure and helped drive selling in commodities. Copper fell 2.4 percent, and gold dropped 1.8 percent to $1192.60.
Metals have been weakening on worries about China and global demand. Add to that new concerns that Europe's woes could hurt the Chinese export engine and also that the country's efforts to slow its growth may be too successful. Dolan also said there was some talk in currency markets that China could be enlisted to support the euro.
"After the dollar, it's their biggest exposure," he said.
De-Risk is on!
Several major hedge fund managers, including Michael Novogratz, president of Fortress, told CNBC's David Faber that they were in the process of 'de-risking' because of concern about the European situation. Check out his interview here.
Jack Ablin, CIO of Harris Private Bank, in a phone interview, said he's not ready to give up on the equities rally yet. "Every market is so correlated, it's tough to move from one market to another and find some insulation," said Ablin.
"For right now, we're hanging in here, but if we breach our momentum levels, we'd start raising some cash," he said. That level would be 5 percent below the 200-day moving average, which is 1102 on the S&P 500. "Historically, that's been a pretty good indicator."
Art Cashin, director of floor operations at UBS , said the stock market was able to hold a key level Wednesday afternoon. "Luckily, we held at 1100, and the S&P bounced off that," he said.
For Thursday, "we should be euro-driven unless there's an ugly claims number, and if they get under 400,000 the bulls will be encouraged," he said.
When buyers were scarce in equities, they were apparent in bonds Wednesday. The 10-year Treasury gained 6/32 points, to 101 6/32, lowering its yield to 3.359%, the lowest level since Dec. 2.
David Ader of CRT Capital says Treasurys are likely to trade sideways going into the weekend. "What we'll trade on is what the stocks are doing, what the euro is doing and you don't want to be short," he said.
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