This is not a correlated market. The USD is Down and Crude is Up which is normal, but the 30 Year T-Bond is trading Up. 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 Higher and Crude is trading Higher which is not correlated. Gold is trading Higher 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. Currently all of Asia is trading Higher. Europe is trading mainly Higher with the exception of the Spanish exchange.

Possible challenges to traders

ADP Non-Farm Employment Change is out at 8:15 AM EST. This is Major.
Employment Cost Index q/q is out at 8:30 AM EST. This is Major.
Chicago PMI is out at 9:45 AM EST. This is Major.
Pending Home Sales m/m is out at 10 AM EST. This is Major.
Crude Oil Inventories is out at 10:30 AM EST. This is Major.
Federal Funds Rate is out at 2 PM EST. This is Major.
FOMC Statement is out at 2 PM EST. This is Major.
FOMC Press Conference starts at 2:30 PM 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 10-year Treasury notes (ZN) 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 with no economic news to report. If you look at the charts below the ZT gave a signal at around 9 AM 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 30 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 - 07/30/24

Dow - Sept 2024 - 07/30/24

Bias

Yesterday we gave the markets a Neutral or Mixed bias and they didn't disappoint. The Dow closed 203 points Higher but the S&P and Nasdaq both traded Lower. Today is FOMC Day and as is our custom we will retain a Neutral or Mixed bias.

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

Commentary

Yesterday we gave the markets a Mixed or Neutral bias as we didn't see much in the way of market correlation Tuesday morning. The markets didn't disappoint as the indices closed Mixed Tuesday with the Dow Higher, but the other indices closed Lower. Today is FOMC Day and for those of you who've been with us awhile, our bias is Neutral or Mixed. Why? Because the markets have never shown any sense of normalcy on this day. Do I think the Fed will reduce interest rates? Unfortunately, no. Whereas I think the Federal Reserve should reduce rates, they want more reason or proof that they should. I don't know what it will take to convince them that they should. They've been talking about rate reductions for nearly a year now yet have taken no action to do so. This will clearly help consumer spending and the real estate markets but yet they are reluctant to do so. Could this change? Of course, anything can happen in a volatile market.

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.