FOMC Day

Good Morning Traders,

As of this writing 5 AM EST, here’s what we see:

US Dollar: Down at 99.050 the US Dollar is down 83 ticks and trading at 99.050.

Energies: March Crude is down at 30.34.

Financials: The Mar 30 year bond is up 5 ticks and trading at 160.10.
Indices: The Mar S&P 500 emini ES contract is down 61 ticks and trading at 1880.75.

Gold: The Feb gold contract is trading down at 1119.10. Gold is 11 ticks lower than its close.

Initial Conclusion

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 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 down and Crude is trading lower which is not correlated. Gold is trading down which is not 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 higher with the exception of the Shanghai exchange which traded higher. As this writing all of Europe is trading lower.

Possible Challenges To Traders Today

- New Home Sales are out at 10 AM EST. This is major.

- Crude Oil Inventories are out at 10:30 AM 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.

Currencies

Yesterday the Swiss Franc made it’s move at around 8:15 AM EST before any economic news reported. The USD hit a low at around that time and the Swiss Franc hit a high. If you look at the charts below the USD gave a signal at around 8:15 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a low at around 8:15 AM EST and the Swiss Franc hit a high. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a shorting opportunity on the Swiss Franc, as a trader you could have netted about 20 plus ticks per contract on this trade. We added a Donchian Channel to the charts to show the signals more clearly. Remember each tick on the Swiss Franc is equal to $12.50 versus the $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we gave the markets a downside bias as both the Bonds and Gold were trading up and usually this is indicative of an downside move. However the markets had other ideas as the Dow gained 282 points and the other indices gained ground as well. So one might be asking “well what happened?” Yesterday you said the markets would drop and they didn’t. We can only speculate that the Smart Money wanted the markets to rise and traded accordingly. This is why we state each and every day “this could change”…. Given that today is FOMC Day, our bias is neutral.

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

Commentary

So we have another FOMC Day to deal with. Currently no one will know what the Fed will or won’t do until 2 PM EST today. Our take is that the Fed will hold firm for the time being as they don’t really have any reason to raise at this point. Inflation is no where to be seen, Retail Sales are down as is GDP so the Fed doesn’t really have a reason with the exception that they could. We’ve seen this situation prior where the Fed raised for no apparent reason other than the fact that they could. Admittedly this goes back to the days of Alan Greenspan but historically speaking when the Fed raised, they kept on raising until they stopped. So what will happen today? We don’t think the Fed will raise as they don’t have a reason to and we think that Janet Yellen has a cooler head than her predecessors. Additionally there’s no press conference today which means no major news to report.