Markets have followed an interesting pattern this week with huge gains followed by flat activity. The S&P 500 only dropped 0.19% and European indices minimally moved. The VIX merely fell 1.01% and commodities remained relatively stagnant while the dollar was virtually unchanged.

Though yesterday’s collaborative central bank aid provided a fleeting ray of light for markets, EU leaders are still budding heads over the ECB’s role. Merkel has been the most vocal in her opposition to having the ECB intervene in the bailout, advocating a hands-off approach and proposing instead that countries concentrate on getting their own budgets in order.

Nevertheless, ECB president Mario Draghi stressed the importance of stepping up to improve the fluidity of credit markets. With the EFSF lacking the necessary firepower to offer aid, the ECB might have to get its hands dirty more than planned. But will it be enough to save the Eurozone?

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In an investment atmosphere seemingly devoid of any rational order, major indexes moved mountains today as the S&P 500 jumped 4.33% while European indices posted big gains as well. The dollar also depreciated slightly against the Euro to $1.34/Euro.

Notably, the VIX tanked to fall to 27.63. Also, the 10-year Treasury bumped up to a yield of 2.07%. However, we are by no means in risk off mode where we want to start adding on equity ETF exposure at an accelerated rate.

Today’s exuberance appears to largely be driven by a coordinated effort among major central banks – US, England, and Japan among others – to provide much needed short-term liquidity to European banks.

To do this, central banks lowered interest rates on dollar denominated loans so that the ECB could then more easily borrow and then channel those funds to major European banks, who heavily engage in dollar transactions that have become increasingly expensive amidst the current turmoil. There’s no denying that we’re in a danger zone with the extent of these emergency actions.

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Perhaps investors came to the realization that all is not well in Europe as markets simmered down. The S&P 500 inched up only 0.22% while Europe and Asia posted marginal gains as well. The dollar still remained at $1.33/Euro, and commodities bumped up a little.

Also, the VIX fell once again, dropping 4.64%, though still above the 30 level. Some risk has been shaved off, but we’re still in risk on mode. There’s plenty of volatility hanging around as Europe’s fate is up in the air. Equity ETFs simply aren’t very tempting at the moment in this type of environment.

Meanwhile, it looks like Europe will require serious help from the IMF as EFSF expansion plans have been faltering. However, there was a statement saying that the EFSF will insure 20-30% of investor losses and plans on intervening in markets next month. Unsure of whether they can leverage the EFSF to over $1 trillion, most European leaders concur that IMF assistance will be necessary to aid countries overburdened with debt.

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