This is a nearly correlated market. The USD is Down and Crude is Down which is not normal, and the 30 Year T-Bond is trading Lower. 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 Lower which is 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. All of Asia traded Lower. All of Europe is trading Lower as well.

Possible challenges to traders

Final GDP q/q is out at 8:30 AM EST. This is Major.
Unemployment Claims is out at 8:30 AM EST. This is Major.
Final GDP Price Index q/q is out at 8:30 AM EST. This is Major.
Philly Fed Manufacturing Index is out at 8:30 AM EST. This is Major.
Existing Home Sales is out at 10 AM EST. This is Major.
CB Leading Index m/m is out at 10 AM EST. This is Major.
Natural Gas Storage is out at 10:30 AM EST. This is Major.
TIC Long Term Purchases is out at 4 PM EST. This is not 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 8:30 AM EST while awaiting the various 8:30 AM news items. The Dow dived Lower at the same time. Look at the charts below and you'll see a pattern for both assets. The Dow moved Lower at 8:30 AM and the ZT moved Higher at around the same time. These charts represent the newest version of Bar Charts, 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 now Mar '25 and the Dow is still Dec '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 -Mar 2025 - 12/18/24

Dow - Dec 2024- 12/18/24

Bias

Yesterday we gave the markets a Neutral or Mixed bias given that it was FOMC Day, and we always maintain a Neutral bias on that day. The Dow dropped 1,123 points on the day and the other indices lost ground as well. Today we are dealing with a nearly correlated market, and it's correlated to the upside.

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

Commentary

So the Federal Reserve decided to reduce interest rates by a quarter point or 25 basis points. Whereas one would think that this is well received news, the other side of the coin is that the Fed won't be too hasty in cutting rates in the future going forward. We alluded to this yesterday and I think it might be as long as 6 months before we see another rate reduction, if any at all. Today we have Philly Fed Manufacturing Index as well as Existing Home Sales and hopefully this might propel the markets forward.

Author

Nick Mastrandrea

Market Tea Leaves

EUR/USD remains offered below 1.1800, looks at US data

EUR/USD is still trading on the defensive in the latter part of Thursday’s session, while the US Dollar maintains its bid bias as investors now gear up for Friday’s key release of the PCE data, advanced Q4 GDP prints and flash PMIs.

GBP/USD bounces off monthly lows near 1.3430

GBP/USD is sliding in tandem with its risk-sensitive peers, drifting back towards the 1.3430 area, its lowest levels in the month. The move reflects a firmer Greenback, supported by another round of solid US data and a somewhat divided FOMC Minutes.

Gold surrenders some gains, back below $5,000

Gold is giving away part of its earlier gains on Thursday, receding to the sub-$5,000 region per troy ounce. The precious metal is finding support from renewed geopolitical tensions in the Middle East and declining US Treasury yields across the curve in a context of further advance in the Greenback.

XRP edges lower as SG-FORGE integrates EUR stablecoin on XRP Ledger

Ripple’s (XRP) outlook remains weak, as headwinds spark declines toward the $1.40 psychological support at the time of writing on Thursday.

Hawkish Fed minutes and a market finding its footing

It was green across the board for US Stock market indexes at the close on Wednesday, with most S&P 500 names ending higher, adding 38 points (0.6%) to 6,881 overall. At the GICS sector level, energy led gains, followed by technology and consumer discretionary, while utilities and real estate posted the largest losses.

Injective token surges over 13% following the approval of the mainnet upgrade proposal

Injective price rallies over 13% on Thursday after the network confirmed the approval of its IIP-619 proposal. The green light for the mainnet upgrade has boosted traders’ sentiment, as the upgrade aims to scale Injective’s real-time Ethereum Virtual Machine architecture and enhance its capabilities to support next-generation payments.