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?

 

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?

 

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

continued for members…

D3, down there at the white channel midline, the SMA50 and the target of the H&S Pattern we discussed yesterday is looking pretty tasty.

 

UPDATE: 1:44PM

Pretty good bounce at yesterday’s lows, completely driven by a strong USDJPY rally off the mornings lows — back above the 1.272 and the pre-opening high.  Important back test coming up here at 1992 for SPX.  If it holds, look for a last bounce higher to the SMA10 at 2000ish.  Otherwise, on to the lower target — the timing for which is either near the close today or tomorrow.

UPDATE:  3:00PM

As long as I’m spit-balling here, there’s a path to 1936 if the current falling white channel holds. Wouldn’t hang my hat on it, tho.