This is nearly a correlated market. The dollar is Down- and crude is Up+ which is 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 Up+ which is 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.

Asia traded mainly lower with the exception of the Aussie and Sensex exchanges which traded higher. As of this writing all of Europe is trading lower.

Possible Challenges To Traders Today

– Unemployment Claims are out at 8:30 AM. This is major.

– FOMC Member Evans Speaks at 8:30 AM EST. This is major.

– FOMC Member Harker Speaks at 8:30 AM EST. This is major.

– Import Prices m/m are out at 8:30 AM EST. This is major.

– Natural Gas Storage is out at 10:30 AM EST. This is major.

– 30-y Bond Auction starts at 1 PM EST

– Federal Budget Balance is out at 2 PM EST. This is not major.

– Fed Chair Yellen Speaks at 7 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 11:30 AM EST with no real economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 11:30 AM EST and the YM was moving lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a low at around 11:30 AM EST and the YM hit a high. 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 long 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 downside bias as the USD, Bonds and Gold were all pointing higher yesterday morning and usually this results in a downside day. The markets however had other ideas as the Dow gained 99 points and the other indices advanced as well. Today we are dealing with a nearly correlated market and it’s correlated to the downside, hence our bias is to the downside.

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

Commentary

Whereas yesterday morning the markets seemed to be headed lower in the early AM hours; this did not hold up as the session began and everyone was waiting to hear what the President-Elect had to say. It seems as though Mr. Trump can truly move the markets based upon what he says and he’s not even in office yet!!

During the press conference his representative stated how the future president will “build a wall” between himself and his assets. His sons will be running his business and he reiterated that a wall will be built between the US and Mexico. Our take on this is simply this: does anyone truly believe that he will be insulted from his assets? What’s to stop his sons from calling him to ask for advice? It would naive to think that this wouldn’t or couldn’t happen. We’ve stated before that this presidency won’t be loaded with the transparency that we took for granted over the past 8 years. In all likelihood it will be loaded with secrecy.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD holds firm above 1.1900 as US NFP looms

EUR/USD holds its upbeat momentum above 1.1900 in the European trading hours on Wednesday, helped by a broadly weaker US Dollar. Markets could turn cautious later in the day as the delayed US employment report for January will takes center stage.

GBP/USD recovers losses despite rising UK political risks, BoE rate cut bets

Pound Sterling advances against the US Dollar after registering modest losses in the previous session, trading around 1.3650 during the Asian hours on Wednesday. The pair could extend losses as the Pound Sterling faces pressure from rising political risks in the UK and growing expectations of near-term Bank of England rate cuts.

Gold sticks to gains near $5,050 as focus shifts to US NFP

Gold holds moderate gains near the $5,050 level in the European session on Wednesday, reversing a part of the previous day's modest losses amid dovish US Federal Reserve-inspired US Dollar weakness. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal ahead of the critical US NFP release.

Bitcoin, Ethereum and Ripple show no sign of recovery

Bitcoin, Ethereum, and Ripple show signs of cautious stabilization on Wednesday after failing to close above their key resistance levels earlier this week. BTC trades below $69,000, while ETH and XRP also encountered rejection near major resistance levels. With no immediate bullish catalyst, the top three cryptocurrencies continue to show no clear signs of a sustained recovery.

Dollar drops and stocks rally: The week of reckoning for US economic data

Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.

BNB prolonged correction signals deeper bearish momentum

BNB (BNB), formerly known as Binance Coin, is trading below $618 on Wednesday, marking the sixth consecutive day of correction since the weekend. The bearish price action is further supported by rising short bets alongside negative funding rates in the derivatives market.