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 Up. 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 Down and Crude is trading Down which is not 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.

All of Asia traded Lower and currently all of Europe (as of this writing) is trading Lower.

Possible Challenges To Traders Today

– Average Hourly Earnings is out at 8:30 AM EST. This is major.

– Non-Farm Employment Change is out at 8:30 AM. This is major.

– Unemployment Rate is out at 8:30 AM EST. This is major.

– FOMC Member Brainard Speaks at 8:45 AM EST. This is major.

– FOMC Member Tarullo Speaks at 1 PM EST. This is major

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 8 AM EST prior to Unemployment Claims being reported. 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 8 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 8 AM EST 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 30 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 USD, Bonds and Gold were all trading down and the S&P was also in negative territory yesterday morning; hence our bias was neutral which means the markets could go in any direction. The Dow gained 68 points yesterday however the Nasdaq and S&P both fell. Given that today is Jobs Friday, we will maintain our neutral bias

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

Commentary

So this is the first Non-Farm Payroll report after the election and prior to an FOMC Meeting. So do we think it’s important? You’d better believe it. We have two Fed members speaking today: one at 8:45 AM EST (immediately after the numbers are reported) and at 1 PM EST. What they say may give some clues as to the Fed’s future intention. Our future President seems intent on hiking rates but he needs to be careful on what he wishes as it may come true. A billionaire wants a rate hike so that the interest they collect from various accounts and instruments increases. That’s ok for passive investments but a rate hike also means higher interest rates on debt as well which is not good for consumer spending. Gee I thought a billionaire would know that but I guess that’s a benefit of living in a bubble, you get an alternate sense of reality.

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.