Today, EURUSD reached a key technical level, completing a Bat Pattern that should see it rebound strongly.  We’ve been anticipating this day ever since DX broke out three weeks ago.

And, it begs the question: if EURUSD rebounds and the US dollar falls, what might become of USDJPY — the single biggest factor in driving stock prices?

continued for members…Note the .886 tag earlier today.  It came just a few days after DX reached its .886.The puzzle surrounding EURUSD is complex.  Every time stocks sell off, a quick spike in EURUSD is one of the tools that TPTB roll out to stem the tide.  And, it works fairly well.  The Aug 24 spike, corresponding with SPX’s lows, is the most obvious example.  But, it happens quite often — especially when USDJPY or CL is indisposed.

So, it stands to reason that, in general, a lower EURUSD (dollar strength, euro weakness) is a drag on stocks.  But, if PSPP is expanded as everyone seems to think it will be, stocks will suffer.

The flip side of the equation is that the USDJPY is much more powerful than EURUSD in driving stock prices.  A higher USDJPY (dollar strength, yen weakness) boosts stocks.  So, for USDJPY to work its bullish magic, dollar strength must be limited to its relationship with the yen, not the euro — i.e. yen weakness and euro strength.  In a currency race to the bottom, that’s easier said than done.

I’ll leave you with a look at the big picture.  Note that the March 2015 lows had poked through the falling red channel midline before a sudden nonsensical bounce.

It was one of those manufactured bounces that was designed to save stocks from an 80-pt meltdown.  And, it was the day that TPTB realized a lower EURUSD was hurting stocks.

The bounce back up through the red midline and the white .236 line ran its course, and is now reversing not only at the .886 of the Mar-Aug bounce, but at a point which is very close to the intersection of the red midline and .707 Fib (1.0515.) In other words, there’s potential support from a channel standpoint as well as the Fib argument.

Should EURUSD, instead, complete its journey to the white .786 at .9898, it will probably mean that stocks aren’t having a very good time of it.