USDJPY’s Turn

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Members will recall that one critical component of our oil/gas decline scenario is USDJPY’s breakout from the falling channel from 2017 shown below. Guess what?

The yen carry trade is a tried and true method of goading the algos into buying equities – even overpriced ones. It works especially well as a counterweight to falling oil/gas prices as we first observed in 2015 [see: Did TPTB Crash Oil?]

So, it’s absolutely no surprise to see central banks pull it out of the playbook at a time when folks are suddenly curious about hidden, systemic risks and oil/gas prices are in the midst of a healthy reset.

continued for members…

We’ll start with USDJPY this morning, as its breakout will be a primary guide to stocks over the next several weeks (at least), assuming that CL and RB will continue their decline. There are a lot of USDJPY charts below, but it’s useful in forecasting to get a sense of where we are and what would constitute a meaningful breakout. We’ll start with the very big picture and zoom in.

The biggest features are the gigantic falling white channel whose midline has been tested several times and the falling white dashed TL – both of which aren’t far above current levels. Note that I have divided the top and bottom halves of the falling white channel into separate purple channels to further mark important smaller scale levels.

It wouldn’t take much to get up to the white TL – currently about 116.04 – or the channel midline – currently about 119.50.But, USDJPY should cause quite a stir simply by topping its 2/20 high of 112.221. I like the idea of intersecting with one of the obvious Fibs such as the white 1.272 at 114.18 with the white TL or the white 1.618 at 117.34 with the channel midline. But, the important thing for this trick to work is that it keep going higher any time stocks are in trouble. As most will remember, this worked very well (until it didn’t) in 2015-2016, using the .618 at 120.11 as a key breakout/breakdown marker. Note how the channel midline also came into play (June 5, 2015.)

Obviously, USDJPY’s breakout is helping DXY break out too.

Though a bounce by EURUSD at our next downside target could mitigate DXY’s upside. Between USDJPY and VIX, ES has been convinced not to crater (so far.) Though, it continues to have plenty of downside if it ever breaks down. It would be unusual to do so at the end of the month, let alone the end of a quarter. But, Thursday starts a new month/quarter.

FWIW, the year began at SPX 3726.88 and March began at SPX 3811.15.

Elsewhere, we’re seeing SI break down below its SMA200 this morning. GC is on the ledge looking down… a failure to hold these lows would open a floodgate of selling.UPDATE: 7:00 PM

Yep, you sure can tell it’s the end of the month/quarter. Nothing doing to the upside or the downside except for CL/RB and GC/SI.

Another very large percentage decline in VIX…just to keep stocks from tanking more than a few points. USDJPY closed at the high for the day – still broken out. This has left NKD in a backtest position – theoretically with more downside ahead. This supports the idea of a quarter-end lift as opposed to another leg up. Note that SI has very clearly broken down, with the red TL at 22.70 the next level of support.