FXY Japanese Yen Downward-Sloping Channels Oversold Falling Wedges Positive Divergence

For many months the dollar and euro relationship ruled the markets and would accurately point the direction of stocks.  A higher dollar means lower copper and comodities, and lower euro, and lower equity markets. A lower dollar means higher copper and commodities, and higher euro, and higher equity markets. The central banker intervention this year, however, has distorted all price and asset relationships across the board.  The interesting game-changer this year is the BOJ's decision to devalue the yen. The intent is to create inflation to try and pull Japan out of a two-decade deflationary spiral. The Land of the Rising Sun may end up becoming the Land of the Sinking Sun. Months from now, Japan may long for the stagnant economic days of the last fifteen years.

The dramatic weakening of the yen is nothing short of spectacular. The currency markets these days in general are remarkable with huge moves occurring daily in major currencies. In one-half year, the yen has fallen from 128 to 98, a drop of 24%; the yen is dropping 4% per month, 1% per week.  At the same time, the $USD, the U.S. dollar basket, is moving sideways through a wide range, ditto the euro. Clearly the yen is driving the global market ship right now.  The BOJ debasing of the yen is having the greatest impact on equity markets even more so than the Fed easing or the money flooding into the U.S. that is fleeing Europe. The three blue dots directly correspond to the three latest peaks in the SPX. Obviously, the weak yen is the driver. The green lines create the positive divergence bounces and yesterday's action sets the markets up for another pull back in the SPX as a result of a pending bounce in the yen.  The downside momo in the yen is strong, however, and after the bounce, a lower low is anticipated especially due to the leaking MACD histogram. The red dots show the overextended price move to the downside as compared to the 200-day MA that pleads for a recovery.

Overall, however, it appears that much of the easy money has already been made. Traders are waiting to see the dollar/yen tag 100. Yesterday the pair was only a hair away but today has pulled back a touch to 99.6-ish (as yen moves down the dollar/yen pair moves higher). The yen is key to the direction of the equity markets moving forward as clearly illustrated with the blue dots.  The yen is expected to base in the coming weeks. The dollar/yen is expected to move above 100 which would correspond to the down leg shown by the brown line in the right margin with the FXY printing another low. Once the yen bases the broad market rally in the U.S. should stall and roll over. A drastic drop in the yen to the lower rail of the purple channel cannot be ruled out, especially in the current global market craziness, if so, that will correspond to the SPX over 1600. The projection, however, is that the yen weakness is overdone and a basing pattern will begin. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.