Thursday, June 12, 2008

Stocks Vs Japanese Yen Relationship

For well over a year the stock market has had an inverse relationship with the Japanese Yen. When the Yen would rally, stocks would sell off and when the Yen moved lower stocks would rally.

If you look at the above chart you will see how perfect this inverse relationship was over the past year. If you take a close look at what's been happening since June 1st, you will notice that the Yen is trending lower but so are stocks! The stock market should be moving higher as the yen moves lower but that's simply not happening.

In my opinion, if stocks can't rally with a falling yen, I take that as a bearish signal for the market. What's going to happen when the Yen rallies? Will stocks collapse? I think we might actually see that.

Only time will tell what will happen in the market but I just wanted to share my observations with all of you as the story unfolds in real-time. We'll see what happens.


kk said...

The collapse of the relationship is due to little risk aversion in JPY carry trade. USD/JPY is purely on rates now. Thus, equity don't have material influence on it.

If JPY rally, I don't see equity follow lower much. The link has decoupled one month ago.The only reason I see a nasty equity sell off is a long rally in commodities, which might cohappen with lower USD.

j. / marketfolly said...

yea very interesting observation, thanks for pointing that out.


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