By Carlos Guillen

Stocks are mostly down so far during this trading session as a result of continuing fears of a contagion from Greece to the rest of the euro zone. Clearly, Europe has once again become a focal point for investors, and anything happening Europe will shake markets for the short run. The Fact that China has cut banks' reserve ratio requirements once again has likely mitigated some of the market's downward pressure, but clearly not enough.

The Drama in Greece is intensifying as President Karolos Papoulias is failing to get support on forming a unity government. At the moment, the dominant political parties are simply not willing to stick to their country's debt agreement with foreign lenders. This controversy is making it very difficult to form a unity government and will ultimately lead to new elections. The leader of the Coalition of the Radical Left, Mr. Tsipras, has said Greek voters had resoundingly rejected austerity in elections on May 6. At the moment, the Greek government is still up in the air as they are trying to meet and discuss a fix for the issue. So the big question still remains, will Greece remain part of the euro zone? Stay tuned for the next episode.

Perhaps a bit encouraging today was that China cut its banks' reserve ratio requirements by 50 basis points. This represents the third reduction in the past six months, which means that large banks will now be required to hold reserves equal to 20 percent of deposits instead of 20.5 percent. It is apparent that China is doing all it can to stimulate lending activity in the region, and this may also be indicative of lowering interest rates in the coming months as inflation eases and growth diminishes.

So far during the trading session volumes are low adding to the volatility in stocks. The Dow Jones Industrial Average looks as if it will bounce off a support and markets should begin to react to low oil prices, lower inflation in the U.S., a higher probability of Fed easy money, and the Chinese government stepping in to stimulate growth. One encouraging trend is the continuing drop in the price of crude oil, which should allow for strength in consumption soon. The U.S. economy is still fundamentally strong, and the weakness in oil is more supply driven at the moment as Iraq is stepping in to increase production. The likelihood that china will loosen money should also bode well for markets. All this should bode well for stocks to make a comeback in the short run.

Flee to American Safety Presents Dollar/Gold Conundrum
By David Urani

The day once again belongs to the Three Stooges of Europe (Greece, Spain and Italy). With all of the conflict going on in the Greek government, it was only natural that sovereign bond investors would get nervous. Consequentially Italian and Spanish auctions went poorly as risk premiums shot higher. The Spanish 10-year yield is signaling danger, up 22 basis points to 6.23%, which is the highest since last November. Italy's yields are up 19 basis points, although they remain below the year-to-date highs.

For me, all of these problems in Europe bring up a bit of a conundrum in gold and the dollar. Naturally, the euro has taken a shellacking and as a result the dollar has seen a big upswing.

Dollar to Euro

The higher dollar, along with the economic implications of a hurting Europe, has subsequently hit commodities. Gold in particular has lost 6% just this month. Yet, as a safety asset one would think the allure of gold would be strong at the moment, especially with the euro currency under increasing doubt. We know with certainty that people want to flock to safety, because US 10-year treasuries are trading around record low yields so the potential for gold to make a turnaround is there if it weren't for the rise of the dollar.

Gold

It seems natural that investors would run to America, because believe it or not we're just about the best country to turn to if you're looking for a safety net right now. In that sense, the dollar continues to be supported. But there's one guy who can change that, and that's Ben Bernanke of course. You know he sees all that's going on in Europe and a couple of recent data points suggest the pain overseas is starting to affect us here at home. In the meantime, inflation looks like less of an issue with oil prices having gone from above $105 to start the month to below $95 currently.

So that means the chances of more QE are rising. Surely the crowds will start speculating on more Fed stimulus any minute now. In that case, look out for the dollar to make a reversal and for gold to follow suit, especially if QE does indeed happen.