Fed Minutes Propel Markets

Good Morning Traders,

As of this writing 4:20 AM EST, here’s what we see:

US Dollar: Down at 95.090 the US Dollar is down 317 ticks and trading at 95.090.

Energies: October Crude is up at 50.03.

Financials: The Dec 30 year bond is up 20 ticks and trading at 157.01.
Indices: The Dec S&P 500 emini ES contract is down 19 ticks and trading at 2001.75.

Gold: The October gold contract is trading up at 1150.70. Gold is 64 ticks higher than its close.

Initial Conclusion

This is a mainly correlated market. The dollar is down- and crude is up+ which is normal but the 30 year bond is trading higher. 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 down and Crude is trading up which is correlated. Gold is trading up which is correlated with the US dollar trading down. 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.

All of Asia traded higher. As of this writing all of Europe is trading higher as well..

Possible Challenges To Traders Today

- Import Prices m/m is out at 8:30 AM EST. This is major.

- FOMC Member Lockhart Speaks at 9:10 AM EST. This is major.

- Wholesale Inventories m/m is out at 10 AM EST. This is major.

- FOMC Member Evans Speaks at 1:30 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:35 AM EST after the Unemployment Claims came out. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 8:35 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 high at around 8:35 AM EST and the Swiss Franc hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.

USD to Swiss Franc

Bias

Yesterday we said our bias was to the downside as Crude and the Bonds were trading higher. Initially the markets opened and traded lower but that was before the FOMC Meeting minutes came out. The Dow closed up 138 points and the other indices gained ground as well. Today we are dealing with a mainly correlated market however it’s correlated to the downside. Hence our bias is to the downside.

Could this change? Of Course. Remember anything can happen in a volatile market.

Commentary

Yesterday the markets traded higher based on the FOMC Meeting minutes from their last meeting. It seems as though the Fed was more concerned with the Chinese slowdown and the impact that had on the markets and decided to hold off on any hikes. The Fed voted 9-1 to hold rates as opposed to raising and this to me makes perfect sense. We’ve long held the belief that this recovery is tepid at best and it wouldn’t take much to slow it down. Raising rates at this point will slow it down and have an adverse effect on business borrowing, consumer spending, Auto Sales, New Home Sales and Mortgage refinancing. If anyone wanted to throw a monkey wrench into this “recovery”, raising rates will accomplish that feat. In the meantime the market liked what it heard and the indices shot higher.