For now, it appears as though the Fed won the battle without having to fire a single shot.  Expectations of a September hike have doubled, the US dollar has pulled out of its nosedive and futures are back in the green (by 1 point, but green.)

To the casual observer, it would appear that they must have all the right answers.  Of course, the real culprit for all things bright and beautiful is the yen, which was monkey hammered on more Kuroda gobbledygook about massive QQE expansion.

Whether he will or won’t — who knows?  But, the USDJPY spiked higher and NKD is back above the ominous TL below which it broke last week.

This, of course, is even more an illusion than the dollar’s strength, as the buying was done by the BoJ itself — not “market” confidence in the wisdom of its policies — which are piling ruin upon Japan’s already bleak future.

continued for members…

The USDJPY’s rise was pretty spectacular — especially considering it was just manufactured out of thin air by jawboning and BoJ manipulation at key inflection points.  Note that it broke out of the little white flag pattern and is back above the broken yellow channel bottom.

Of course, it’s still in the falling red channel, which is quite prominent.

It was on track to reach the .618 at 94.83 until this move turned it around, or at least delayed it.

It’s a combination of yen weakness and dollar strength.  As we discussed at length last week, the Fed needs dollar strength to suppress inflation.  After breaking down, DX is right back inside the rising purple channel and trying to break above the white channel midline.

Although the charts left it up in the air on Friday, it appears that our analog will continue on track today.  This means new highs today or tomorrow, perhaps back to the rising purple channel top.

Another chart worth watching today: VIX.  If the ascent stalls at the SMA20 at 2177.73 or SMA10 at 2180.79, look for VIX to plunge down through the yellow TL (13.47ish) that has factored so heavily into its movement for the past several weeks.

Another stall point is ES 2176.50, the top of the falling white channel guiding the downside since Aug 19.  If it doesn’t break out, then its back to the red .786 at 2152, probably tomorrow.  If it does, then our analog is in good shape.  VIX is very likely to be the key.

Last, but not least, there’s CL.  If the dollar is on the rise, they can afford to let oil rise too (though it’ll crush Japan even worse, with its plunging yen.)

The obvious white channel back test would have occurred days ago had the falling red channel not been trashed.  Now, it’s drifting aimlessly, with a purple bottom tag likely after the close today — presumably at the SMA100.

I imagine it’ll take over ramping duties after USDJPY’s spike has run its course.  It makes sense: oil can continue to rise as the yen rebounds.  The tricky issue, then is whether DX’s strength falters.  Maybe time for some euro bashing instead?

UPDATE:  10:20 AM

I have to run out for 20 minutes.  Here’s a quick update:

UPDATE:  12:14 PM

Another one of those melt-ups that’s like watching paint dry.  SPX just reached the purple channel midline, which could be cause for a pause or retrenchment.  As expected, the rise has been driven by VIX, which did fall beneath the yellow TL.  It’s definitely ahead of itself, but I don’t see any reason for strong support here.  Therefore, I don’t expect any pullback to be significant — probably just a backtest of the SMA10 at 2180.79.

UPDATE:  3:40 PM

With 20 minutes to go, it looks like SPX is testing the white channel midline.   It could still bounce up to the .886 by the EOD, but hard to say for sure.ES is backtesting the white channel top and its SMA10.   And, VIX holding off (for now) tagging either TL.

I have to take off a few minutes early.  But, for now, I don’t see any reason why the analog shouldn’t hold another day.  If you can stand the overnight risk and/or hedge, I think it makes sense to hold long.