FOMC Day

Good Morning Traders,

As of this writing 4:45 AM EST, here’s what we see:

US Dollar: Up at 96.890 the US Dollar is up 222 ticks and trading at 96.890.
Energies: April Crude is up at 36.71.
Financials: The June 30 year bond is down 1 tick and trading at 161.21.
Indices: The Mar S&P 500 emini ES contract is up 10 ticks and trading at 2009.00.
Gold: The April gold contract is trading up at 1231.30. Gold is 3 ticks higher 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 up and Crude is trading higher which is not correlated. Gold is trading up 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 lower with the exception of the Shanghai exchange which traded fractionally higher. As of this writing all of Europe is trading higher.

Possible Challenges To Traders Today

- Building Permits is out at 8:30 AM EST. This is major

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

- Core CPI m/m is out at 8:30 AM EST. This is major.

- Housing Starts is out at 8:30 AM EST. This is major.

- Capacity Utilization Rate is out at 9:15 AM EST. This is not major.

- Industrial Production m/m is out at 9:15 AM EST. This is not major.

- Crude Oil Inventories is out at 10:30 AM EST. This is major.

- FOMC Economic Projections is out at 2 PM EST. This is major.

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

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

- FOMC Press Conference starts at 2:30 PM EST. This is major.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:45 AM EST after 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 8:45 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 8:45 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 ticks plus 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.

Please note that the front months are now June, 2016.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a neutral bias as the futures had no sense of direction yesterday morning. For those of you who are new subscribers a neutral bias means the markets could go in any direction. Given that today is FOMC Day we will maintain a neutral bias. The Dow gained 22 points but the S&P and Nasdaq lost ground.

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

Commentary

Yesterday morning all the instruments we watch and track was pointed lower (except the US Bonds) and whenever you see a situation like that (either all up or all down); it only means a neutral bias. Today is FOMC Day and we always maintain a neutral bias on this day as the markets have never shown a sense of normalcy on either this day or Jobs Friday. So the bigger question is what will the Fed do? Of course no one really knows for sure and we won’t find out until 2 PM EST this afternoon however I’m hoping cooler heads will prevail. I say this because at this juncture it is very easy for the Fed to toss this economy into recession and all they have to do is continuously hike rates. At some point that will drive the economy into a slowdown and if not now at some point in the future. One thing is for certain, this will be a major report as the Fed will be conducting a press conference at 2:30 PM and every time they do that, something major is afoot.