Good Morning Traders,
As of this writing 5:45 AM EST, here’s what we see:
US Dollar: Up at 81.675, the US Dollar is up 120 ticks and is trading at 81.675. Energies: September Crude is down at 97.25. Financials: The Sept 30 year bond is down 7 ticks and trading at 138.24. Indices: The Sept S&P 500 emini ES contract is up 125ticks and trading at 1936.75. Gold: The August gold contract is trading down at 1309.60 and is down 2 ticks from its close.
Initial Conclusion
This is not correlated market. The dollar is up+ and oil is down- which is normal but the 30 year bond is trading lower. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are up and the US dollar is trading up which is not correlated. Gold is trading lower which is correlated with the US dollar trading up. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don’t have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.
Asia traded mainly higher with the exception of the Singapore exchange which traded down fractionally. As of this writing all of Europe is trading higher.
Possible Challenges To Traders Today
Core Retail Sales m/m is out at 8:30 AM EST. This is major.
Retail Sales m/m is out at 8:30 AM EST. This is major.
FOMC Member Dudley Speaks at 9:05 AM EST. This is major.
Business Inventories m/m are out at 10 AM EST. This is not major.
Crude Oil Inventories are out at 10:30 AM EST. This could move the crude market.
10-y Bond Auction starts at 1 PM EST. This could affect afternoon trading.
Currencies
Yesterday the Swiss Franc made it’s move at around 9:15 AM EST prior to the JOLTS Job Openings report. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 9:15 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a low at 9:15 AM EST and the Swiss Franc hit a high. I’ve changed the charts to reflect a 5 minute time frame and added a Darvas Box to make it more clear. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted 10-12 ticks on this trade. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
Yesterday we said our bias was to the upside as the Bonds were trading lower. The Dow dropped 9 points and the other indices lost ground as well. Today we aren’t dealing with a correlated market however our bias is to the upside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
Yesterday morning the markets were poised to go higher. Asia had traded mainly higher and Europe also traded mainly higher with the exception the German ZEW Sentiment came in less than expected. This measures investor confidence but after months of concern over the Ukraine situation, it’s certainly understandable. The US markets opened higher but then at 10 AM the JOLTS Job Opening numbers came in less than expected. Would you believe that a major financial market news bureau actually reported this as a positive? They stated that the number reported was higher than last month’s. Since when is not meeting expectation good? The markets don’t judge based upon last month’s number, they base it against the expected number and when it misses, it misses. After this number was reported, the Dow went into negative territory and stayed there for the remainder of the session.
Trading performance displayed herein is hypothetical. The following Commodity Futures Trading Commission (CFTC) disclaimer should be noted.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.
There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Trading in the commodities markets involves substantial risk and YOU CAN LOSE A LOT OF MONEY, and thus is not appropriate for everyone. You should carefully consider your financial condition before trading in these markets, and only risk capital should be used.
In addition, these markets are often liquid, making it difficult to execute orders at desired prices. Also, during periods of extreme volatility, trading in these markets may be halted due to so-called “circuit breakers” put in place by the CME to alleviate such volatility. In the event of a trading halt, it may be difficult or impossible to exit a losing position.
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