FOMC Propels Markets

Good Morning Traders,

As of this writing 5:35 AM EST, here’s what we see:

US Dollar: Up at 80.085, the US Dollar is up 43 ticks and is trading at 80.085.
Energies: Aug Oil is down at 101.98.
Financials: The Sept 30 year bond is up 7 ticks and trading at 137.06.
Indices: The Sept S&P 500 emini ES contract is down 48 ticks and trading at 1955.25.
Gold: The August gold contract is trading up at 1339.80 and is up 154 ticks from its close.

Initial Conclusion

This is a correlated market unfortunately it’s correlated to the downside. The dollar is up+ and oil is down- which is normal and 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 lower and the US dollar is trading up which is correlated. Gold is trading higher which is not 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.

All of Asia traded mixed with half the exchanges trading lower and the other half higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

1. Unemployment Claims are out at 8:30 AM EST. This is major.
   

2. Wholesale Inventories M/M are out at 10 AM EST. This is not major.

3. Natural Gas Storage is out at 10:30 AM EST. This could affect the Nat Gas market.

4. 30 Year Bond Auction starts at 1 PM EST. This could affect afternoon trading.

5. FOMC Member Fischer Speaks at 4:30 PM EST.

Currencies

Yesterday the Swiss Franc made it’s move at 9:05 AM EST with no economic news in sight. 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 9:05 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 9:05 AM EST and the Swiss Franc hit a low. 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 15-20 ticks on that 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 neutral as the market wasn’t showing its hand in terms of direction. A neutral bias means the markets could go in any direction. Be that as it may the Dow gained 79 points and the other indices gained ground as well. Today we are dealing with a correlated market, unfortunately 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 we said our bias was neutral as the markets wasn’t showing its hand in terms of direction. Then 2 PM came and the FOMC Meeting Minutes were released. It appears as though the Federal Reserve wants to stop Quantitative Easing in October as opposed to December as most people were led to believe. The good news is that the Fed will keep interest rates low for a “considerable period of time” after QE is complete. This makes sense as they’ll want to measure GDP and the long term unemployed. No doubt the pundits and analysts will claim that the Fed will start to hike rates in April as opposed to June, 2015. Today we have Unemployment Claims at 8:30 AM EST and it will be interesting to see how this measures up to last week’s Non-Farm Payroll numbers.