Ignore the headlines. If you’re looking for something to blame for this morning’s sell off, look no further than USDJPY, which has once again stumbled at the all-important .618 Fib at 120.11.It’s easy to see from the chart above that every time USDJPY pops up above 120.11, ES rallies. Every time it drops below, ES declines. This morning, it even put in lower lows after registering a lower high than yesterday. With any other financial instrument, we’d call that a trend. With the tightly managed USDJPY, it’s more of a tool.
So, why the inability to decisively retake 120.11? What’s the end game? As regular readers know, most of the “market’s” gains since 2011 have been driven by the yen carry trade. If the yen doesn’t keep dropping in value (USDJPY gains in value) then the bull market is over.
So, the question remains, what will it take for the BoJ to keep bashing the yen — especially as negative political repercussions continue to rise? For the answer, we turn to another important chart, the Nikkei.
The Nikkei 225 is nearing an important trend line of support that we’ve been watching. If it bounces off that TL and continues northward, all is well. Kuroda and Abe can go back to fleecing the Japanese people in the knowledge that their phoney baloney jobs are safe. But, if it plunges through that TL…well, that might be just what carry traders need in order to get the BoJ off its keister.
Could it happen? And, more importantly, would it work? As we discussed in our last update on the Nikkei [see: Update on Nikkei, Sep 10], it might just be the pivotal moment for the bulls.
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