FOMC Flops

The FOMC punted on raising rates yesterday. As expected, the US dollar tumbled and the USDJPY plunged. Only very aggressive dollar buying that started around 3am ET halted the pair’s decline. Note that this is likely the last gasp for the USDJPY and the yen carry trade. If it can’t rebound here at the .886 Fib retracement of the rise from 100 to 126, then it’s a long way down.

The last time USDJPY traded at 100, SPX was nearing 1823 — the 1.272 extension of its 2007-2010 drop from 1576 to 666. By all rights, SPX should have reversed there. But, USDJPY broke out – up 26% over the next 21 months. It dragged SPX 311 points (17%) higher.

But, much to central bankers’ chagrin, stocks topped out when USDJPY did. Had oil not stepped up as the new market manipulation tool of choice on Feb 11, stocks would be back down to those Dec 2013 lows.SPX remains on track for our primary downside target, though there are a few potential interim stops along the way.