This is not a correlated market. The USD is Up and Crude is Down which is normal, but 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 Lower, and Crude is trading Higher which is correlated. Gold is trading Lower which is 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. All of Asia is trading Lower. Currently all of Europe is trading Lower as well.

Possible challenges to traders

Unemployment Claims is out at 8:30 AM EST. This is Major.
Philly Fed Manufacturing Index is out at 8:30 AM EST. This is Major.
Current Account is out at 8:30 AM EST. This is Major.
Existing Home Sales is out at 10 AM EST. This is Major.
CB Leading Index m/m is out at 10 AM EST. This is Major.
Natural Gas Storage is 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.

Yesterday the ZN migrated Lower at around 2 PM EST as the S&P hit a Low at around the same time. If you look at the charts below the S&P gave a signal at around 2 PM and the ZN started its Downward slide. Look at the charts below and you'll see a pattern for both assets. S&P hit a Low at around 2 PM and migrated Higher. 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 Short opportunity on the 10-year note, as a trader you could have netted about a 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 - 9/20/23

S&P - Dec 2023 - 9/20/23

Bias

Yesterday, we gave the markets a Neutral bias as it was FOMC Day, and we always maintain a Neutral bias on that day. Why? Because the markets have never shown any sense of normalcy on that day. The Fed decided to leave interest rates where they are at the moment, but the indices lost ground Wednesday after the announcement. Today we aren't dealing with a correlated market and will maintain a Neutral bias.

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

Commentary

So, at 2 PM yesterday everyone found out what the Fed would do and true to form they kept rates where they are. Just as we suggested yesterday, they would not lower rates and didn't. Truth be told this environment could use a rate reduction as everyone is tired of inflation and major purchases are being held due to higher interest rates. So why didn't the markets rise after the announcement? After all, the Fed didn't raise rates they just kept them where they are. The Fed also said it would leave the door open for one more rate hike before 2024. That means that within the next three months the Fed could hike again and at the worst possible time as that will be in the middle of the Holiday Season or the busiest shopping time and spending time of the year. Time will tell how this all works out. Today we have Unemployment Claims, Philly Fed Mfg. Index and Existing Home Sales. All major and all proven market movers. Could this move the markets in an upward direction? Only time will tell...

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.