Who Knew What And When

When we see asset correlations break down, we need to ask ourselves why!

Gold and Yen pairs have long been considered a flight to safety.  When traders get nervous, they tend to sell risky assets and move their money into “safe havens”, such as Gold and Yen. 

Given yesterday’s risk-on move in stocks, one may have considered that things to be great and that the economy is on the path of growth and continued support by the Fed.  This can be seen in a 5-minute chart of yesterday’s price action in S&Ps.

Market chart showing S&P 500 E-mini Futures. Published in January 2020 by FOREX.com

Source: Tradingview, CME, FOREX.com

That may still be the case, however Gold and Yen didn’t seem to believe the narrative.  Take a look at the 5-minute chart of USD/JPY from yesterday.  As S&Ps were making new highs into the close, USD/JPY  could only retrace 50% of the day’s move. 

Market chart of USD to JPY. Published in January 2020 by FOREX.com

Source: Tradingview, FOREX.com

The same can be said for EUR/JPY.  From high to low, the Yen pair was down over 200 pips, and could not even retrace to the 38.2% Fibonacci retracement level for the day!

Market chart of EUR to JPY. Published in January 2020 by FOREX.com

Source: Tradingview, FOREX.com

Below is a 5-minute chart of S&Ps overlaid on Gold.  Gold and S&P’s typically have an inverse relationship, i.e. when stocks move higher, gold will usually move lower.  Notice at the end of the day how the 2 assets were moving together.

Market chart of Gold vs USD. Published in January 2020 by FOREX.com

 Source: Tradingview, CME, FOREX.com

Perhaps this just may have just been positioning on the first trading day of the new year.  Markets will still be thin until many traders return from a long break on Monday.   However, after seeing the price action of Yen pairs and Gold begs us to ask the question….Did someone know that the US attack, which killed Iran Gen. Qassem Soleimani, was imminent?  This is something we will never know the answer to. Obviously, as we know now, after the attacks S&Ps dropped roughly 55 handles from high to low.  Proper risk management would have stopped out anyone who had gotten long in S&Ps into the end of day yesterday.  But when we see asset correlations break down, we need to ask ourselves why that is and take note of it.  If one had questioned this yesterday, it may have resulted in hesitation to buy S&Ps into the end of the day and may have saved someone from a losing trade. 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account