This is not a correlated market. The dollar is Down, and Crude is Down which is not 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 the bonds should follow and vice-versa. The S&P is Higher, and Crude is trading Lower which is correlated. Gold is trading Higher 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. Asia is trading mainly Higher with the exception of the Hang Seng and Singapore exchanges which are Lower. Currently all of Europe is trading Higher.

Possible challenges to traders today

No Major News to speak of.
Lack of Major News.

Treasuries

Traders, please note that we've changed the Bond instrument from the 30 year (ZB) to the 10 year (ZN). They work exactly the same.

We've elected to switch gears a bit and show correlation between the 10-year bond (ZN) and the S&P futures contract. The S&P contract is the Standard and Poor's, and the purpose is to show reverse correlation between the two instruments. Remember it's likened to a seesaw, when up goes up the other should go down and vice versa.

On Friday the ZN made its move at around 9:30 AM EST. The ZN hit a High at around that time and the S&P moved Higher shortly thereafter. If you look at the charts below ZN gave a signal at around 9:30 AM EST and the S&P moved Higher at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a High at around 9:30 AM EST and the S&P was moving Higher shortly thereafter. These charts represent the newest version of MultiCharts and I've changed the timeframe to a 15-minute chart to display better. This represented a Shorting opportunity on the 10-year note, as a trader you could have netted about a dozen plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Sep '22. The S&P contract is also Sep' 22 as well. The front months are now Sep' 22. I've changed the format to Heikin-Ashi such that it may be more apparent and visible.

Charts courtesy of MultiCharts built on an AMP platform

ZN - Sep 2022 - 08/05/22

S&P - Sep 2022 - 08/05/22

Bias

On Friday we gave the markets a Neutral or Mixed bias as it was Jobs Friday, and we always maintain a Neutral bias on that day. Why? Because the markets have never shown any sense of normalcy on that day. The Dow traded 77 points Higher, but the other indices lost ground. The S&P dropped 7 and the Nasdaq lost 63. Today we aren't dealing with a correlated market and our bias is to the Upside.

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

Commentary

On Friday we witnessed blowout job numbers in the respect that the US economy created 528,000 net new jobs versus the 250,000 expected. Yet the markets didn't greet this stellar news as expected. President Biden took a victory lap on Friday yet in our opinion this was very premature. The markets traded Mixed on Friday because the Smart Money knows what's happening and what will happen. Anyone who has studying business cycles knows what's happening. Inflation is running wild in the US and the Fed is determined to reduce that or decrease it. Their way of doing this is to raise interest rates which they have been doing all year. The concern is should the Fed go overboard with raising interest rates they will shut down demand. They shut down demand and that's when we have massive layoffs, and the recession begins. The Smart Money knows this, and the Fed must tred very carefully so as not to tip the scales too readily and shutdown demand. In other words, create a soft landing. Only time will tell if they are successful in doing this.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.