When Yellen Speaks

Good Morning Traders,

As of this writing 4:50 AM EST, here’s what we see:

US Dollar: Down at 94.225, the US Dollar is down 336 ticks and is trading at 94.225.
Energies: April Crude is down at 49.15. Please note: the front month for crude is now April.
Financials: The Mar 30 year bond is up 8 ticks and trading at 146.13
Indices: The Mar S&P 500 emini ES contract is down 7 ticks and trading at 2112.00.
Gold: The April gold contract is trading up at 1208.40 and is up 111 ticks from its close. The front month for Gold is now April

Initial Conclusion

This is not a correlated market. The dollar is down- and oil is down- which is not normal but the 30 year bond is trading higher. 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 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.

Asia traded mainly higher with the exception of the Nikkei and Shanghai exchanges which traded lower. As of this writing all of Europe is trading to the downside although fractionally.

Possible Challenges To Traders Today

Fed Chair Yellen Testifies at 10 AM EST. This is major.

New Home Sales is out at 10 AM EST. This is major.

Crude Oil Inventories is out at 10:30 AM EST. This can move the crude market.

Currencies

Yesterday the Swiss Franc made it’s move at around 10 AM EST at around the time that Janet Yellen started to speak. The USD hit a high at around that time and the Swiss Franc hit a low. If you look at the charts below the USD gave a signal at around 10 AM EST, while the Swiss Franc also gave a signal at just about the same time. Look at the charts below and you’ll see a pattern for both assets. The USD hit a high at 10 AM EST and the Swiss Franc hit a low. These charts represent the latest version of Trend Following Trades and I’ve changed the timeframe to a Renko chart to display better. This represented a long opportunity on the Swiss Franc, as a trader you could have netted 20 plus ticks on this trade. We added a Donchian Channel to the charts to show the signals more clearly. Remember each tick on the Swiss Franc is equal to $12.50 versus $10.00 that we usually see for currencies.

Charts Courtesy of Trend Following Trades built on a NinjaTrader platform

Bias

Yesterday we said our bias was neutral which means the market could go in any direction. The Dow gained 92 points and the other indices rose as well. Today we aren’t dealing with a correlated market however our bias is to the upside.

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

Commentary

It’s never a good idea to underestimate Janet Yellen or what she’ll say. In almost every instance that she’s spoken the markets move into positive territory. Yesterday was no exception. Apparently Yellen is in no hurry to hike rates as they’ll take each Fed meeting on a meeting by meeting basis. I think this is a positive sign as if the Fed hikes sooner as opposed to later, our take is consumer spending will suffer and that is not good for a recovering economy. The question is will that trend continue today as this is Day Two of Yellen testimony. In other news Greece has finally come to an accord with the EU and was granted a 4 month extension of their debt plan.