When a rally fizzles because USDJPY is faltering, CL can usually be counted on to come to the rescue. Such was the case with this morning’s pop and drop (the drop just plain looked bad, coming as it did during the FOMC brain trust’s powwow.)
What’s an HFT-wielding central banker to do? Simple: CL, which tagged the 78.6% retracement of its sharp rally from its March lows overnight, suddenly popped a full 3.8% in under 8 hours.
There wasn’t any news. There wasn’t any change in the fundamental supply-demand picture. Just the need for an immediate reversal before last night’s emini ramp job turned negative. Some folks would call this manipulation. To me, it’s just another day in our centrally planned “markets.”
HOW DO THEY DO THAT?
Here, in all its algo-ramping glory: TL tags the .786 Fib, then breaks out and backtests the white falling wedge before making a bee line to the falling red channel top. Naturally, it was ready to reset after the close.
Pebblereaders know that USDJPY drives most of stocks’ gains. It has since the 2011 lows. But, when it needs to reset — as it is now in observance of our analog — then CL is usually able to keep things on the rise.
It’s why DX has ceased to act as a valid indicator of “market” direction. And, for bulls, it’s a classic manifestation of “heads we win, tails you lose.”
HOW IT WORKS
A rising USDJPY drives stocks higher, and entails a falling yen and rising US Dollar — the classic yen carry trade [explained here.]
A rising CL, on the other hand, drives stocks higher but entails a falling dollar. The yen might rise at the same time. But, more often than not, it stays put and the euro rises to offset the USD’s drop. It’s more fuel to the fire, as a strengthening euro is viewed as a sign of confidence in the failing union.
The relationship can be clearly seen on today’s charts. The 5-min USDJPY is seen in the chart below, with ES shown as the thin purple line. When it bumped up against the falling purple channel line and started falling again, ES normally would have followed along.But, at that exact same moment, CL had broken out of white falling wedge, backtested it, and was one its way to new highs (breaking through the small trend line shown in red.) Once CL reached the top of the falling red channel and could go no further without really making headlines, USDJPY magically reversed and was ready to take over the algo activity.
If you don’t watch this stuff every day like I do, then it’s hard to notice. That’s because the Fed, BOJ and ECB are more subtle about it than the PBOC. To the casual observer, it seems like the market just always goes up, no matter what the news, economic data, etc. Now, at least, you’ll know why!