FOMC Day

Good Morning Traders,

As of this writing 4:30 AM EST, here’s what we see:

US Dollar: Down at 96.975 the US Dollar is down 17 ticks and trading at 96.975.

Energies: December Crude is up at 43.22.

Financials: The Dec 30 year bond is down 6 ticks and trading at 158.11.
Indices: The Dec S&P 500 emini ES contract is up 8 ticks and trading at 2062.50.

Gold: The December gold contract is trading up at 1171.00. Gold is 52 ticks higher than its close.

Initial Conclusion

This is a not a correlated market. The dollar is down- and crude is up+ (fractionally) which is normal and 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 Crude is trading up which is not 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 mainly lower with the exception of the Japanese Nikkei which traded higher. As of this writing Europe is trading mainly higher with the exception of the London and Milan exchanges which are trading lower.

Possible Challenges To Traders Today

- Goods Trade Balance is out at 8:30 AM EST. This is major.

- Crude Oil Inventories is out at 10:30 AM EST. This could move the crude markets.

- FOMC Statement is out at 2 PM EST. This is major.

- Federal Funds Rate is out at 2 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:30 AM EST right around the time that the economic news was reported. 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 8:30 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 around 8:30 AM EST and the Swiss Franc hit a high. 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 shorting 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.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we said our bias was neutral as the indices gave no sense of direction yesterday morning. Given that today is FOMC Day we will maintain a neutral bias. For those of you who are new to us, a neutral bias means the markets could go in any direction today.

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

Commentary

Another FOMC Meeting and all the analysts and pundits will be chomping on the bit to dissect what the Fed will say today concerning rate hikes. We do not anticipate any change at this meeting. Yesterday we had 6 major economic reports and none of them met expectation. Not surprisingly the markets dropped 42 points on the Dow and the other indices lost ground as well. Another telltale sign is the Fed hasn’t scheduled a press conference after the meeting and typically when something major is afoot they do.

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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.

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