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.

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.