USD JPY Direction Depends on Stock Market

USD JPY traders should be watching the action in the equity markets fordirection.  The strong rise in the stock market this morning was fueledby aggressive carry trade activity which helped weaken the JapaneseYen.

USD JPY traders should be watching the action in the equity markets for direction.  The strong rise in the stock market this morning was fueled by aggressive carry trade activity which helped weaken the Japanese Yen. Since Chrysler declared  bankruptcy late this morning, the stock market has been selling off and taking the USD JPY with it.

Many traders feel that the stock market has gone too far, too fast which could be an indication that another top will be forming in the USD JPY.

Technically, the two-day short-covering rally in the USD JPY could be over as the market reached a retracement zone at 98.53 to 99.22.  This zone was based on the range of 101.44 to 95.62.

If weakness develops in the stock market then look for selling pressure to hit the USD JPY.  The first downside target is 95.62.  A failure to hold this level could trigger an acceleration to 93.53. 

This scenario is dependent upon a stock market top.  If stocks don’t top then look for upside momentum in the USD JPY to drive this market through 99.22 on its way to 101.44.