Back on Oct 4 [see: The Most Important Chart], I noted that TPTB had an important decision to make regarding oil (CL.) Recall that we anticipated an impending top, which I officially declared on Oct 10 [see: Welcome to Peak Oil.] The choices, as I saw them then:
(1) let CL’s IH&S Patterns play out and drag stocks along to new highs, inflation be damned.
(2) let the patterns play out until mid-October or early November, long enough to keep stocks on the rise into the election.
(3) slam CL back down from current prices as occurred in mid-August, and let USDJPY take up the reins. It’s been itching to break out ever since Brexit, testing the falling red channel top eleventy billion times.
As we noted later that day, USDJPY did break out. Its spectacular 11.8% spike in the ensuing 7 weeks has been largely responsible for stocks pushing through to new, all-time highs — even as oil plummeted 18.2% following our top call.
Will the rally continue, or is it time for a reversal? We’ll take a look.
continued for members…
Note that DX has reached our 102.098 target, the white .618, and should reverse here. In fact, any further breakout by DX could be problematic.
Some might argue that the USD is likely to move higher (and, thus, USDJPY higher) with the upcoming FOMC rate increase. But, although the increase seems certain (100% at last check) a move higher for DX isn’t.
Consider Dec 16, 2015, when the FOMC raised rates for the first time in almost a decade. DX had already peaked two weeks before at a key Fib level. The FOMC’s action merely bought time for DX, keeping it on the rise through the end of Jan 2016. It seems to me that this upcoming rate increase is priced in at least as much as was the Dec 2015 one.
For USDJPY, this likely translates into a backtest of the rising white channel (around 109.64) it broke out of on Nov 17 or even the falling white channel midline at 108.78.
And, if the euro is able to compensate for the yen’s weakness, we could see the pair push on up to backtest the broken purple channel at 115.58 or even the white channel top and infamous .618 Fib at 120.11.