USD JPY Likely to Dictate Equity Market Direction

Traders are selling the USD JPY this morning as protection against a bankruptcy filing by U.S. commercial lender CIT. Investors have been lightening up their demand for higher yielding assets after CIT Group announced it probably won’t receive a federal bailout.

Traders are selling the USD JPY this morning as protection against a bankruptcy filing by U.S. commercial lender CIT. Investors have been lightening up their demand for higher yielding assets after CIT Group announced it probably won’t receive a federal bailout.

A better than expected earnings report from JP Morgan early this morning triggered a turnaround in the stock index futures. Asian and European markets had been down for most of the night as traders lightened up their positions in higher yielding assets. As stocks firmed this morning on the JP Morgan news, the USD JPY showed signs of bottoming.

The early morning trade suggests that today may be a choppy, two-sided trade in the USD JPY Forex pair as a clash of fundamentals is leading traders to take different views of the market. One camp is looking for a CIT bankruptcy to trigger a break in equities which should lead to safe-haven buying in the Yen. Other traders are saying the CIT situation has been overblown and that this week’s up trend in the stock market is likely to continue with aggressive investors selling the Yen to participate in the rally.

After watching the Forex and Futures markets for several hours overnight and early this morning, it appears that today will be a two-sided trading day. The fundamentals are mixed and the signals are unclear. At this time it appears traders are not clear what to do about the CIT situation. If fear and uncertainty set in, then look for profit-taking in the equity markets. A top in the equity markets is likely to encourage the selling of higher-yielding currencies such as the Australian and New Zealand Dollars. Weakness in gold and crude oil could put selling pressure on the Canadian Dollar.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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