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 Higher, and Crude is trading Higher which is not 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. Asia is trading Mixed with half the exchanges Higher and the other half Lower. Currently all of Europe is trading Lower.

Possible challenges to traders today

Final Manufacturing PMI is out at 9:45 AM EST. This is Major.
ISM Manufacturing PMI is out at 10 AM EST. Major.
Construction Spending is out at 10 AM EST. Major
ISM Manufacturing Prices at 10 AM EST. Major.
Wards Total Vehicle Sales - All Day, by Brand. Major.
FOMC Member Williams Speaks at 3:10 PM EST. 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.

On Friday the ZN made its move at around 8:30 AM EST. The ZN hit a Low at around that time and the S&P moved Lower at around the same time. If you look at the charts below ZN gave a signal at around 8:30 AM and the S&P moved Lower at around the same time. Look at the charts below and you'll see a pattern for both assets. ZN hit a Low at around 8:30 AM and the S&P was moving Lower 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 Long 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 Dec '22. The S&P contract is also Dec' 22. 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 - Dec 2022 - 09/30/22

S&P - Dec 2022 - 9/30/22

Bias

On Friday we didn't see much in the way of correlation hence the Neutral bias. The markets veered to the Downside as the Dow closed Lower by 500 points and the other indices lost ground as well. Today we aren't dealing with a correlated market and our bias is Neutral.

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

Commentary

It appears as though the strategy of one day up, next day down didn't work on Friday. If it were true, then Friday should have closed Higher but that didn't happen. As we've stated previously; this strategy will work until it doesn't, and Friday's action proved that. The Dow closed 500 points Lower. Today we have Construction Spending and Total Vehicle sales; both of which are major and proven market movers. Will this be enough to move the markets to the Upside? 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.