We will continue yesterday’s overview on currencies and how their recent price action affects bonds, gold, crypto and equities.

First, note that DXY did in fact break below the midline. As we discussed yesterday, this is potentially very significant.

continued for members…DXY’s weakness is coming courtesy of both the yen… …and the euro.

If, as I believe, the goal is to keep stocks on the rise through the end of the year and/or to SPX 3720 / ES 3730, then USDJPY’s weakness will be a drag.

But, there are obviously other factors at work. We’ve talked about moves in the oil and gas markets, which play out through inflation and interest rates. But, what about the euro?

It has been a fickle supporter of stocks – sometimes in a strong positive correlation and at other times negatively correlated.

EURUSD’s price moves since 1995 have fit nicely into a rising channel, shown below in white. It did a very poor job of signaling reversals, however, between 2010-2014.

During this time, EURUSD seemed much more preoccupied with rallying to support stocks during the multiple times they were under pressure.So there’s reason, based on its midline, to consider the rising yellow channel which might have taken over in 2000.

And, of course, we can’t ignore the nifty falling red channel which lasted from 2006 to just last month, when EURUSD finally broke out of it.

EURUSD is a fickle indicator for stocks. The falling red channel top tags were excellent equity correction indicators in 2007 and 2011. But the 2014 reversal – bigger and badder than the previous ones – had little effect on stocks.

This is partially due to a couple of breakdowns in VIX which got it over SPX’s 1.272 Fib at 1823.But, as we’ve discussed many times, USDJPY’s breakout from a long-term falling channel and triangle to top its .618 at 120.11 was key.When EURUSD plunged from the red (and yellow) channel tops in 2008, USDJPY was also in the midst of a huge 4+ year and 40% drop.  When EURUSD plunged from its April 2011 top, USDJPY was plunging again, this time after Fukushima.

So, the key to letting EURUSD decline without decimating stocks is to offset it with a USDJPY rally – with a little help from VIX and CL when necessary.

continuing…