FOMC Day

US Dollar: Dec. USD is Down at 94.010.

Energies: Jan ’18 Crude is Up at 57.67.

Financials: The Mar 30 year bond is Up 8 ticks and trading at 152.29.

Indices: The Dec S&P 500 emini ES contract is 3 ticks Lower and trading at 2667.00.

Gold: The Feb gold contract is trading Up at 1243.70.  Gold is 20 ticks Higher than its close.

Initial Conclusion

This is not a 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 Lower 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.

At this hour Asia is trading Mixed with half the exchanges Higher and the other half Lower.   As of this writing Europe is trading mainly Lower with the exception of the London and Milan exchanges which are trading fractionally Higher.

Possible Challenges To Traders Today

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

• Core CPI is out at 8:30 AM EST.  This is major.

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

• President Trump Speaks.  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.  This is major.

• FOMC Member Brainard Speaks at 6 PM EST.

Treasuries

We’ve elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract.  The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments.  Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.

Yesterday the ZB made it’s move at around 10 AM EST.   The ZB hit a High at around that time and the YM hit a Low.  If you look at the charts below ZB gave a signal at around 10 AM EST and the YM was moving Higher at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a High at around 10 AM and the YM hit a Low.  These charts represent the newest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better.  This represented a shorting opportunity on the 30 year bond, as a trader you could have netted about  15 plus ticks per contract on this trade.  Each tick is worth $31.25.  We added a Donchian Channel to the charts to show the signals more clearly.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform.

 

Bias

Yesterday we gave the markets a Neutral bias as the Bonds and Gold were both pointed higher and in theory the indices should have been pointed lower and yet they were trading higher, hence the neutral bias.  The Dow gained 119 points, the S&P gained 4 but the Nasdaq dropped 13. Given that today is FOMC Day we will maintain a neutral bias.

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

Commentary

Today is the last FOMC Meeting of 2017 and odds are that the Federal Reserve will hike the FFR (Federal Funds Rate) or commonly called the overnight rate which represents the interest rate percentage that the banks must pay the Fed to borrow funds.  In essence this is the banks borrowing rate.  Of course once the banks are involved they will charge what they please but they must be competitive.  I think the Fed will raise for a number of reasons.  Janet Yellen will no longer be the Fed Chair and the new Fed Chief was appointed by Trump.  Trump is very much in favor of the Fed raising because it creates more passive income for high net worth persons like himself.  The Fed can claim that the economy is doing so good that it’s a prudent idea to hike.  However is it really a good idea to hike during the holiday shopping season?  We don’t think so but as in all things.