The US Dollar is Down ahead of Trump's victory

Good Morning Traders,

As of this writing 3:30 AM EST, here’s what we see:

US Dollar: Dec. USD is Down at 97.390.

Energies: December Crude is Down at 44.52.

Financials: The Dec 30 year bond is Down 37 ticks and trading at 160.30.

Indices: The December S&P 500 emini ES contract is 149 ticks Lower and trading at 2098.00.

Gold: The December gold contract is trading Up at 1299.60.  Gold is 251 ticks Higher than its close.

Initial Conclusion

This is not a correlated market.  The dollar is Down- and crude is Down-  which is not normal and the 30 year bond is trading Down.  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 is trading lower as well.

Possible Challenges To Traders Today

–  Final Wholesale Inventories is out at 10 AM.  This is not major.

–  Crude Oil Inventories is out at 10:30 AM EST.  This is major.

–  10-y Bond Auction starts 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 10 AM EST with no economic news to speak of.  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 10 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 10 AM EST and the YM hit a low.  These charts represent the latest 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 it was a Presidential election in the United States.  The Dow gained 73 points and the other indices gained ground as well.  Today however the Dow futures are 600-700 points lower on the news that Donald Trump won the presidency.  As such our bias is to the downside.

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

Commentary

Who said the markets can’t move on Election Day?  Ordinarily you don’t see much in the way of movement on Election Day but this certainly was the exception to that rule.  The Dow gained 73 points yesterday and about 450 points in the last two days combined.  The other indices gained ground as well and this despite a tepid Jolts Jobs numbers report which came in at 5.49 million versus 5.67 million expected.

The above paragraph was written yesterday afternoon after the market closed.  Based on the news that Mr. Trump won the election, the Dow futures are 600-700 points lower, as of this writing (3 AM Wednesday).  Both Asia and Europe are trading lower at this hour as well.  If anyone thought the markets were uncertain before, they have yet to see uncertainty as no one on Wall Street wanted a Trump victory and now the markets must reassess itself to determine what sectors make sense in a Trump regime.