Race to the Bottom: Jan 22, 2013

Lots of big earnings announcements today:  JNJ, VZ, DD, TRV, DAL all missed, while GOOG, IBM, TXN, CA and AMD will report after the close.   It’s getting tougher to ignore slowing revenue growth, though the misses were almost universally blamed on Hurricane Sandy.

But it’s the currencies that are getting most of the attention lately, with the yen making headlines all weekend. The BOJ followed through on expectations, confirming they will continue unlimited QE in 2014 once the current program ends in December.  They also embraced a 2% inflation target though, as many observers have pointed out, they’ve failed to even come close to the current 1% inflation target.

USDJPY is the pair I watch the closest.   A weakening yen obviously strengthens the dollar index (the yen is 13.6% of DX) but it is easily offset by euro strength (57.6% of DX.)  Nevertheless, the pair’s importance shouldn’t be discounted, as it heavily influences trade.

The two dominant chart features are the falling channel (purple) since 1998 and the falling wedge (yellow, dashed) since 2001.

The pair broke out of the falling wedge in January 2012, but recently began reacting with the channel midline at a price level just beyond our target range of 87-89.  If you believe the BOJ, the pair will blow through this resistance and continue up to 95 without a hiccup.

In fact, the daily RSI over the past six months suggests today’s little 1.2% correction might be all we get.

But, if we back out just a bit, we can see this isn’t necessarily the case.

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