USDJPY reached our 118 target overnight.

We charted this target over a year ago [see: USDJPY’s Turn] following USDJPY’s breakout from the falling purple channel [see: The Usual Suspects], reasoning that the Bank of Japan would ramp up the yen carry trade in order to support the Nikkei’s breakout.

The BoJ rarely disappoints, and they didn’t in this case. The question, now, is how far they’re willing to go.

continued for members…

But, NKD’s breakout has come full circle and is at risk of breaking down below the Feb 2020 highs.This target is important because whether or not USDJPY continues to break out and complete the IH&S will determine whether stocks are about to get walloped.

Note that the EURUSD is still contemplating a breakdown… …and the DXY is still loitering inside the channel it broke down from – just shy of its .786. Its ascent remains the best tool TPTB have to offset high oil prices.If USDJPY pulls back from the channel midline, we will almost certainly see the next leg down in SPX as expected. If it pushes through, it will continue to provide support – either extending the bounce or, if vigorous enough, ending the downturn. Note that the IH&S ES completed on Friday was a total headfake. And COMP is still loitering around its -20% mark.

Although its moving averages are all bullishly aligned, VIX remains broken down from its most recent rising channel and faces overhead resistance at 41.36… …another backtest of the dashed yellow TL. It’s definitely looking like risk off from the standpoint of GC, SI and BTC… …as well as CL and RB, which continue to look like they’ll at least reach their backtest targets.

The most puzzling chart this morning is TNX, which has gapped up above 2.10% despite the 4%+ decline in oil and gas. At this point, it appears to be a breakout of the rising purple channel and an embrace of the rising red channel. Note that it didn’t even complete its backtest of the red IH&S neckline.

The 2s10s is edging closer and closer to inverted.And ZN appears to have broken down. It not only dropped back into the falling white channel, but has plunged below its .618 without much of a reaction after initially reaching it.Bottom line, there are a number of factors that could save the market from another leg down. At the moment, they are aligned to prevent one – a very common phenomenon in advance of a Fed meeting or significant economic data release.

But, a failure to go the next step – a breakout in USDJPY, bounce in EURUSD, decline in DXY, collapse in VIX, rebound in CL/RB – would signal that the Fed sees another leg down as inevitable.

Stay tuned…