This is not a correlated market. The USD is Down and Crude is Down which is not normal, and the 30 Year T-Bond is trading fractionally Higher. The Financials should always correlate with the US dollar such that if the dollar is Higher, 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 traded Mixed. Europe is trading Higher with the exception of the London exchange which is trading Lower.

Possible challenges to traders

NFIB Small Business Index is out at 6 AM EST. This is Major.
Core PPI is out at 8:30 AM EST. This is Major.
PPI is out at 8:30 AM EST. This is Major.
FOMC Member Scmidt Speaks at 10 AM EST. This is Major.
Federal Budget Balance is out at 2 PM EST. This is Major.
FOMC Member Williams Speaks at 3:05 PM EST. This is Major.

Traders, please note that we've changed the Bond instrument from the 10 year (ZN) to the 2 year (ZT). They work exactly the same.

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract. The YM contract is the Dow Jones Industrial Average, 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 Monday the ZT migrated Higher at around 7 AM EST with no economic news in sight. The Dow moved Lower at the same time. Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 7 AM EST and the ZT moved Higher at around the same time. These charts represent the newest version of Bar Charts, and I've changed the timeframe to a 15-minute chart to display better. This represented a Long opportunity on the 2-year note, as a trader you could have netted 20 plus ticks per contract on this trade. Each tick is worth $7.625. Please note: the front month for ZT is now Mar '25 and the Dow is now Mar '25. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of BarCharts

ZT -Mar 2025 - 1/13/25

Dow - Mar 2025- 1/13/25

Bias

Yesterday we gave the markets a Downside bias as both the USD and Crude were pointed Higher Monday morning and that usually represents a Downside Day. The markets had other ideas as both the Dow and the S&P traded Higher while the Nasdaq closed Lower. 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

Yesterday the markets were poised to go Lower but instead two of the three major indices traded Higher with only the Nasdaq trading Lower. So what happened? This is typical of a Dead Cat Bounce which occurs when the markets have traded Lower for a period of time and then migrates in the opposite direction due to short covering. In other words the market is going lower and traders are shorting the market thinking it will continue to the downside and then short covering kicks in, and the market migrates in the opposite direction. Today we have the all important PPI numbers which will tell the Fed if it's wise to continue reducing interest rates. PPI is likened to CPI for component and raw material manufacturers.

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.