Big Picture: Sep 10, 2014

USDJPY ramp continued into the night, tagging the daily 1.272 and completing a Butterfly Pattern.  As we’ve often warned, a decline in USDJPY could end the dollar-yen carry trade momentum stocks have enjoyed since Abe first began trashing the yen.

There have been two very interesting developments in the past 24 hours. First, The BOJ just bought 3 month bills at a negative yield — in essence directly funding the Japanese treasury.  Second, Japanese finance ministers have started talking up the yen, stating that a lower exchange rate with the dollar “would not be desirable.”  Is the carry trade over, or are mom and dad merely squabbling?


2014-09-09-USDJPY daily 0600

Note that each USDJPY reversal beginning with Jan 2 (Point A) caused sizable sell-offs in stocks. From A to B corresponded to 104 points; from C to D was 77.  And, the mere thought that the party was over at Point E touched off the August swoon in stocks.  What if the party really were over?


2014-09-09-USDJPY wkly 0700

After nailing the first two downside targets (D1 and D2), I’m more than a little nervous offering up a third.  But, here goes.

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