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 Lower. 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 is trading Higher with the exception of the Shanghai exchange. Currently all of Europe is trading Higher.

Possible challenges to traders

ADP Non-Farm Employment Change is out at 8:15 AM EST. This is Major.
Revised Nonfarm Productivity q/q is out at 8:30 AM EST. This is not Major.
Revised Unit Labor Costs q/q is out at 8:30 AM EST. This is not Major.
Trade Balance is out at 8:30 AM EST. This is Major.
Crude Oil Inventories are out at 10:30 AM EST. This is Major.

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. Today we aren't dealing with a correlated market and our bias is to the Upside.

Yesterday the ZN migrated Higher at around 9:45 AM EST as the S&P hit a High at around the same time. If you look at the charts below the S&P gave a signal at around 9:45 AM and the ZN started its Upward trend. Look at the charts below and you'll see a pattern for both assets. S&P hit a High at around 9:45 AM and migrated Lower. 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 Long opportunity on the 10-year note, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Dec '23. The S&P contract is now Dec' 23. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of MultiCharts built on an AMP platform

ZN - Dec 2023 - 12/05/23

S&P - Dec 2023 - 12/05/23

Bias

Yesterday we gave the markets a Downside bias as the Bonds and the USD were Higher Tuesday morning and this usually represents a Down Day. The markets didn't disappoint as the Dow dropped 80 points; the S&P dropped 3 but the Nasdaq gained 45. All in all, a mainly lower day across the markets. Today we aren't dealing with a correlated market, but our bias is to the Upside.

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

Commentary

Now had I followed the scenario of One Day Down, Next Day Up I would have automatically given the markets an Upside bias yesterday. But I follow the mindset of assume and those of you who have ever served in Corporate America knows exactly what that is. Bottom line don't ever assume anything when it comes to these markets. Today we are light on economic news with only Trade Balance as the real major news item. That will change later this week as we do have Non-Farm Payrolls out on Friday.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD accelerates losses, focus is on 1.1800

EUR/USD’s selling pressure is gathering pace now, opening the door to a potential test of the key 1.1800 region sooner rather than later. The pair’s pullback comes on the back of marked gains in the US Dollar following US data releases and the publication of the FOMC Minutes later in the day.

GBP/USD turns negative near 1.3540

GBP/USD reverses its initial upside momentum and is now adding to previous declines, revisiting at the same time the 1.3540 region on Wednesday. Cable’s downtick comes on the back of decent gains in the Greenback and easing UK inflation figures, which seem to have reinforced the case for a BoE rate cut in March.

Gold picks pace, flirts with $5,000

Gold is back on the front foot on Wednesday, shaking off part of the early week softness and pushing higher towards the key $5,000 mark per troy ounce. The move comes ahead of the FOMC Minutes and is unfolding despite an intense rebound in the US Dollar.

Fed Minutes to shed light on January hold decision amid hawkish rate outlook

The Minutes of the Fed’s January 27-28 monetary policy meeting will be published today. Details of discussions on the decision to leave the policy rate unchanged will be scrutinized by investors.

Mixed UK inflation data no gamechanger for the Bank of England

Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.

Sui extends sideways action ahead of Grayscale’s GSUI ETF launch

Sui is extending its downtrend for the second consecutive day, trading at 0.95 at the time of writing on Wednesday. The Layer-1 token is down over 16% in February and approximately 34% from the start of the year, aligning with the overall bearish sentiment across the crypto market.