Nick Mastrandrea
Market Tea Leaves
Good Morning Traders,
As of this writing 4:20 AM EST, here’s what we see:
US Dollar: Up at 97.700 the US Dollar is up 262 ticks and trading at 97.700.
Energies: April Crude is up at 36.37.
Financials: The June 30 year bond is down 4 ticks and trading at 162.04.
Indices: The Mar S&P 500 emini ES contract is down 7 ticks and trading at 1993.25.
Gold: The April gold contract is trading down at 1268.30. Gold is 24 ticks lower than its close.
Initial Conclusion
This is not a correlated market. The dollar is up+ and crude is up+ which is not 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 down and Crude is trading lower which is not correlated. Gold is trading down 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.
All of Asia traded higher with the exception of the Aussie exchange which traded fractionally lower. As of this writing Europe is trading lower.
Possible Challenges To Traders Today
- Labor Market Conditions Index m/m is out at 10 AM EST. This is major.
- FOMC Member Brainard Speaks at 1 PM EST. This is major.
- FOMC Member Fischer Speaks at 1 PM EST. This is major.
- Consumer Credit m/m is out at 3 PM EST. This is major.
Currencies
On Friday the Swiss Franc made it’s move at around 8:35 AM EST after the Jobs numbers 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 per contract 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 the $10.00 that we usually see for currencies.
Charts Courtesy of Trend Following Trades built on a NinjaTrader platform
Bias
On Friday we gave the markets a neutral bias as it was Jobs Friday and we always maintain a neutral bias on that day. The Dow rose 63 points and the other indices rose as well. Not much to be sure but a win is far better than a loss. Today we aren’t dealing with a correlated market and we’ll maintain a neutral bias.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary
So the Jobs Numbers came and went on Friday and of course everyone’s ready to pop a champagne cork as the numbers came in at 242,000 versus 195,000 expected. What everyone fails to mention is the U6 Long Term unemployed rate is still drastically high and at this point should be way below the 9.7 rate that it is. The “official” unemployed rate in the US is still at 4.9% but will probably fall below that if we continue to see jobs gains in the months ahead. The Fed is probably salivating over an interest rate increase despite the fact that inflation is no where to be seen and no where near the 2% threshold that the Fed has establish for a rate increase. The Fed will meet later this month to make that determination but I do hope that cooler minds will prevail.
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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Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
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Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.