Charts I’m Watching: Apr 9, 2015

We’ve noted over the past several weeks that only a decline in EURUSD would permit both CL and USDJPY (and hence equities) to sell off at the same time.  So yesterday’s failure of EURUSD’s rising purple channel is potentially significant.

2015-04-09 EURUSD 60 0615To recap, USDJPY’s rallies almost always drive stocks higher — whether or not they last, and despite the fact that they are entirely and openly manipulated by the BoJ and other central banks — not to mention large HFT traders/hedge funds.

CL has joined the algo game over the past several weeks — also driving stocks higher when it rallies.  But, it is very highly negatively correlated with the USD dollar.

So, a rally in CL drives DX lower which, everything else being equal, should drive USDJPY lower — unless it’s propped up, which it usually is.  Result: rising stock prices.

A decline in CL drives DX higher, which — all else equal — drives USDJPY higher.  Result: higher stock prices.

When EURUSD declines, however, DX can strengthen even while the yen strengthens (USDJPY falls.)  This sets the stage for CL and USDJPY to fall at the same time, and take ES/SPX with them.

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