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Thursday, February 12, 2009

The US Dollar, Japanese Yen and Volatility Spell Trouble

The US dollar (USD) looks set to break out explosively... only the direction remains uncertain. A break UP is BAD for equities. A break DOWN, is GOOD. A strong bid in the dollar would mean money is scrambling to get into the safest assets. (Strangely that really still is treasuries.)

Also, watch the Japanese Yen (XJY). A strong Yen represents financial stress and is BAD for equities. (Now that the Carry Trade has been unwound, the Yen is acting as a safe haven... yeah... I know. WTF eh?)

Strength in the USD and XJY combined with the refusal of volatility (VIX) to come down further is a bad sign for risky assets.

With the S&P 500 now precariously balanced at the bottom the trading range and the largest single component poised to break down, things are set for another leg lower.


Anonymous said...

Where the US $$ will go is this year's question.