As we wake up this morning from a barrage of overnight Asian and European economic data, it is the Yen pairs which give new hope to those traders bearish on the indices.
Exhibit #1 – The world’s main carry currency, the Dollar/Yen.
Note how price action on the daily chart turned lower after failing to re-test the short-term pivot high put in on August 28th & 31st, following the washout low from August 24th.
If you add four key momentum moving averages, you’ll see that August 24th’s price action broke beneath and closed beneath the 200-Day Simple Moving Average (Red line).
The bounce barely was able to rise and close back above the 8-Day EMA (pink line), a key fibonacci short-term momentum indicator.
Price action then slid sideways, tested and REJECTED the 20-Day SMA (Yellow line, one of the most widely watched moving averages) three times in the past three days. Price is currently creating a fourth test and reject pattern.
Other Yen cross currency pairs show similar bearish patterns.
The Aussie/Yen shows a strong directional lead for the S&P 500, as some Forex traders consider it the world’s “risk currency” gauge.
In this case, the AUD/JPY is relatively weaker than the USD/JPY on the daily chart. A break lower on it could portend a larger bearish move.
Even though the Euro/Yen relationship has changed since the ECB made the rainbow colored currency a carry-trade, it is important to look at its relationship with the Yen.
Price action put in a lower low on the daily chart NOT on August 24th, but on September 4th. We’ve saw a sharp-angled rally back up last week, and that rally failed at the re-test of the August 18-19 low to start this week. Price has since rolled over.
Currencies are important to watch, even if you do not trade them, for the larger picture they imply. In this case, the Yen pairs are indicating that carry-traders are covering their shorts for some reason, and THAT has significant implications across multiple other assets.