This is not a correlated market. The USD is Down and Crude is Down which is not normal, and the 30 Year T-Bond is trading Down. 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 Lower which is not correlated. Gold is trading Lower 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. Asia trading mainly Mixed with half the exchanges Higher and the other half Lower. All of Europe is trading Higher.

Possible challenges to traders

S&P/CS Composite-20 HPI y/y is out at 9 AM EST. This is Major.

HPI m/m is out at 9 AM EST. This is Major.

CB Consumer Confidence is out at 10 AM EST. This is Major.

Richmond Manufacturing Index is out at 10 AM EST. This is Major.

Traders, please note that we've changed the Bond instrument from the 10 year (ZN) to the 2 year (ZT). They work exactly the same.

We've elected to switch gears a bit and show correlation between the 2-year Treasury notes (ZT) and the S&P futures contract. The YM contract is the Dow Jones Industrial Average, 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 ZT migrated Higher at around 9 AM EST. If you look at the charts below the ZT gave a signal at around 9 AM with no real news and started its Upward climb. Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 9 AM and the ZT moved Higher at around the same time. These charts represent the newest version of BarCharts, and I've changed the timeframe to a 15-minute chart to display better. This represented a Long opportunity on the 2-year note, as a trader you could have netted about 20 plus ticks per contract on this trade. Each tick is worth $7.625. Please note: the front month for ZT is Sept and the Dow is now Sept '24. I've changed the format to filled Candlesticks (not hollow) such that it may be more apparent and visible.

Charts courtesy of barcharts

ZT -Sept 2024 - 08/26/24

Dow - Sept 2024- 08/26/24

Bias

Yesterday we had no edition so there was no bias but it appears that the markets experienced a Neutral or Mixed Day. The Dow gained 65 points on the day but the other indices lost ground. Today we aren't dealing with a correlated market as all instruments are trading Lower at the present time. As such our bias is Mixed or Neutral.

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

Commentary

So, it looks like the Federal Reserve as finally come to the conclusion that perhaps they should start to Lower the Federal Funds Rate or the FFR. Sometimes this is called the Overnight Rate as this is the rate the Federal Reserve charges banks to borrow money; the banks in turn mark that up and that rate is what we the consumer spends on interest rates. We've been saying this for months and I'm glad they came to that conclusion as late as it is. Not only do they agree that rates should be reduced but it is speculated that they Lower as much as 50 basis points or one half of one percent. No wonder the markets took off on Friday. Today we have Home Price Index and Richmond Manufacturing, both of which are major and proven market movers. In answer to the question Is the Fed Euphoria Over? All we can say is 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.