This is not a correlated market. The dollar is Up and Crude is Up which is not normal and 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 Lower and Crude is trading Higher which is correlated. Gold is trading Higher which is not correlated with the US dollar trading up. 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. Currently, Asia is trading Mixed. All of Europe is trading Mixed as well at this time.

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 EST.Major.
Unemployment Rate is out at 8:30 AM EST.This is Major.
Final Services PMI is out at 9:45 AM EST.This is Major.
ISM Services PMI is out at 10 AM EST.This is Major.
Factory Orders are out at 10 AM EST.Major.
Treasury Currency Report. 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.

Yesterday 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. 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 20 ticks per contract on this trade. Each tick is worth $15.625. Please note: the front month for the ZN is now Mar '22. The S&P contract is now Mar '22 as well. I've changed the format to Renko bars such that it may be more apparent and visible.

Charts Courtesy of MultiCharts built on an AMP platform

ZN - Mar 2022 - 12/02/21

S&P - Mar 2022 - 12/02/21

Bias

Yesterday we gave the markets an Upside bias and the markets didn't disappoint. The Dow gained 618 points on the day and the other indices leaped forward as well. Given that today is Non-Farm Payrolls or as we call it Jobs Friday, we will maintain a Neutral or Mixed bias as is our custom. Why? Because the markets have never shown any sense of normalcy on this day.

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

Commentary

This has been a tough week as we all know. A week ago we find out about a new strain or variant of Covid 19. The Fed did not offer any positive news about tapering and now we understand that we might have a Debt Ceiling issue liken to what we saw in October and could face a government shutdown. Bottom line we need some good news this week and today we got in the Unemployment Claims report that showed claims of 222,000 versus the 238,000 expected. Today as is our custom we will maintain a Neutral or Mixed bias as it is Jobs Friday and the markets have never shown any sense of normalcy on this day.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

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: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

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.